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InmemoryofAmosTversky
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Contents
Introduction
PartI.TwoSystems
1.TheCharactersoftheStory
2.AttentionandEffort
3.TheLazyController
4.TheAssociativeMachine
5.CognitiveEase
6.Norms,Surprises,andCauses
7.AMachineforJumpingtoConclusions
8.HowJudgmentsHappen
9.AnsweringanEasierQuestion
PartII.HeuristicsandBiases
10.TheLawofSmallNumbers
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11.Anchors
12.TheScienceofAvailability
13.Availability,Emotion,andRisk
14.TomW’sSpecialty
15.Linda:LessisMore
16.CausesTrumpStatistics
17.RegressiontotheMean
18.TamingIntuitivePredictions
PartIII.Overconfidence
19.TheIllusionofUnderstanding
20.TheIllusionofValidity
21.IntuitionsVs.Formulas
22.ExpertIntuition:WhenCanWeTrustIt?
23.TheOutsideView
24.TheEngineofCapitalism
PartIV.Choices
25.Bernoulli’sErrors
26.ProspectTheory
27.TheEndowmentEffect
28.BadEvents
29.TheFourfoldPattern
30.RareEvents
31.RiskPolicies
32.KeepingScore
33.Reversals
34.FramesandReality
PartV.TwoSelves
35.TwoSelves
36.LifeasaStory
37.ExperiencedWell-Being
38.ThinkingAboutLife
Conclusions
AppendixA:JudgmentUnderUncertainty
AppendixB:Choices,Values,andFrames
Acknowledgments
Notes
Index
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Introduction
Everyauthor,Isuppose,hasinmindasettinginwhichreadersofhisorherworkcould
benefitfromhavingreadit.Mineistheproverbialofficewatercooler,whereopinionsare
sharedandgossipisexchanged.Ihopetoenrichthevocabularythatpeopleusewhenthey
talk about the judgments and choices of others, the company’s new policies, or a
colleague’s investment decisions. Why be concerned with gossip? Because it is much
easier,aswellasfarmoreenjoyable,toidentifyandlabelthemistakesofothersthanto
recognizeourown.Questioningwhatwebelieveandwantisdifficultatthebestoftimes,
andespeciallydifficultwhenwemostneedtodoit,butwecanbenefitfromtheinformed
opinionsofothers.Manyofusspontaneouslyanticipatehowfriendsandcolleagueswill
evaluate our choices; the quality and content of these anticipated judgments therefore
matters. The expectation of intelligent gossip is a powerful motive for serious self-
criticism,morepowerfulthanNewYearresolutionstoimproveone’sdecisionmakingat
workandathome.
To be a good diagnostician, a physician needs to acquire a large set of labels for
diseases,eachofwhichbindsanideaoftheillnessanditssymptoms,possibleantecedents
andcauses,possibledevelopmentsandconsequences,andpossibleinterventionstocureor
mitigate the illness. Learning medicine consists in part of learning the language of
medicine. A deeper understanding of judgments and choices also requires a richer
vocabularythanisavailableineverydaylanguage.Thehopeforinformedgossipisthat
thereare distinctivepatterns inthe errorspeople make.Systematic errorsare knownas
biases, and they recur predictably in particular circumstances. When the handsome and
confidentspeakerboundsontothestage,forexample,youcananticipatethattheaudience
willjudgehiscommentsmorefavorablythanhedeserves.Theavailabilityofadiagnostic
label for this bias—the halo effect—makes it easier to anticipate, recognize, and
understand.
When you are asked what you are thinking about, you can normally answer. You
believe you know what goes on in your mind, which often consists of one conscious
thoughtleadinginanorderlywaytoanother.Butthatisnottheonlywaythemindworks,
norindeedisthatthetypicalway.Mostimpressionsandthoughtsariseinyourconscious
experience without your knowing how they got there. You cannot tracryd>e how you
cametothebeliefthatthereisalamponthedeskinfrontofyou,orhowyoudetecteda
hintofirritationinyourspouse’svoiceonthetelephone,orhowyoumanagedtoavoida
threat on the road before you became consciously aware of it. The mental work that
producesimpressions,intuitions,andmanydecisionsgoesoninsilenceinourmind.
Muchofthediscussioninthisbookisaboutbiasesofintuition.However,thefocus
onerrordoesnotdenigratehumanintelligence,anymorethantheattentiontodiseasesin
medicaltextsdeniesgoodhealth.Mostofusarehealthymostofthetime,andmostofour
judgments and actions are appropriate most of the time. As we navigate our lives, we
normallyallowourselvestobeguidedbyimpressionsandfeelings,andtheconfidencewe
haveinourintuitivebeliefsandpreferencesisusuallyjustified.Butnotalways.Weare
often confident even when we are wrong, and an objective observer is more likely to
detectourerrorsthanweare.
Sothisismyaimforwatercoolerconversations:improvetheabilitytoidentifyand
understand errors of judgment and choice, in others and eventually in ourselves, by
providingaricherandmorepreciselanguagetodiscussthem.Inatleastsomecases,an
accurate diagnosis may suggest an intervention to limit the damage that bad judgments
andchoicesoftencause.
Origins
Thisbookpresentsmycurrentunderstandingofjudgmentanddecisionmaking,whichhas
beenshapedbypsychologicaldiscoveriesofrecentdecades.However,Itracethecentral
ideastotheluckydayin1969whenIaskedacolleaguetospeakasaguesttoaseminarI
was teaching in the Department of Psychology at the Hebrew University of Jerusalem.
AmosTverskywasconsideredarisingstarinthefieldofdecisionresearch—indeed,in
anythinghedid—soIknewwewouldhaveaninterestingtime.Manypeoplewhoknew
Amos thought he was the most intelligent person they had ever met. He was brilliant,
voluble, and charismatic. He was also blessed with a perfect memory for jokes and an
exceptional ability to use them to make a point. There was never a dull moment when
Amoswasaround.Hewasthenthirty-two;Iwasthirty-five.
Amos told the class about an ongoing program of research at the University of
Michiganthatsoughttoanswerthisquestion:Arepeoplegoodintuitivestatisticians?We
alreadyknewthatpeoplearegoodintuitivegrammarians:atagefourachildeffortlessly
conformstotherulesofgrammarasshespeaks,althoughshehasnoideathatsuchrules
exist.Dopeoplehaveasimilarintuitivefeelforthebasicprinciplesofstatistics?Amos
reportedthattheanswerwasaqualifiedyes.Wehadalivelydebateintheseminarand
ultimatelyconcludedthataqualifiednowasabetteranswer.
Amos and I enjoyed the exchange and concluded that intuitive statistics was an
interestingtopicandthatitwouldbefuntoexploreittogether.ThatFridaywemetfor
lunchatCaféRimon,thefavoritehangoutofbohemiansandprofessorsinJerusalem,and
plannedastudyofthestatisticalintuitionsofsophisticatedresearchers.Wehadconcluded
in the seminar that our own intuitions were deficient. In spite of years of teaching and
using statistics, we had not developed an intuitive sense of the reliability of statistical
resultsobservedinsmallsamples.Oursubjectivejudgmentswerebiased:wewerefartoo
willingtobelieveresearchfindingsbasedoninadequateevidenceandpronetocollecttoo
fewobservationsinourownresearch.Thegoalofourstudywastoexaminewhetherother
researcherssufferedfromthesameaffliction.
Wepreparedasurveythatincludedrealisticscenariosofstatisticalissuesthatarisein
research.Amoscollectedtheresponsesofagroupofexpertparticipantsinameetingof
theSocietyofMathematicalPsychology,includingtheauthorsoftwostatisticaltextbooks.
As expected, we found that our expert colleagues, like us, greatly exaggerated the
likelihoodthattheoriginalresultofanexperimentwouldbesuccessfullyreplicatedeven
withasmallsample.Theyalsogaveverypooradvicetoafictitiousgraduatestudentabout
the number of observations she needed to collect. Even statisticians were not good
intuitivestatisticians.
Whilewritingthearticlethatreportedthesefindings,AmosandIdiscoveredthatwe
enjoyed working together. Amos was always very funny, and in his presence I became
funnyaswell,sowespenthoursofsolidworkincontinuousamusement.Thepleasurewe
foundin workingtogether made usexceptionally patient;itis mucheasier tostrive for
perfection when you are never bored. Perhaps most important, we checked our critical
weaponsatthedoor.BothAmosandIwerecriticalandargumentative,heevenmorethan
I,butduringtheyearsofourcollaborationneitherofuseverrejectedoutofhandanything
theothersaid.Indeed,oneofthegreatjoysIfoundinthecollaborationwasthatAmos
frequentlysawthepointofmyvagueideasmuchmoreclearlythanIdid.Amoswasthe
morelogicalthinker,withanorientationtotheoryandanunfailingsenseofdirection.I
wasmoreintuitiveandrootedinthepsychologyofperception,fromwhichweborrowed
manyideas.Weweresufficientlysimilartounderstandeachothereasily,andsufficiently
differenttosurpriseeachother.Wedevelopedaroutineinwhichwespentmuchofour
workingdaystogether,oftenonlongwalks.Forthenextfourteenyearsourcollaboration
wasthefocusofourlives,andtheworkwedidtogetherduringthoseyearswasthebest
eitherofuseverdid.
Wequicklyadoptedapracticethatwemaintainedformanyyears.Ourresearchwasa
conversation,inwhichweinventedquestionsandjointlyexaminedourintuitiveanswers.
Eachquestionwasasmallexperiment,andwecarriedoutmanyexperimentsinasingle
day.Wewerenotseriouslylookingforthecorrectanswertothestatisticalquestionswe
posed.Ouraimwastoidentifyandanalyzetheintuitiveanswer,thefirstonethatcameto
mind,theoneweweretemptedtomakeevenwhenweknewittobewrong.Webelieved
—correctly,asithappened—thatanyintuitionthatthetwoofussharedwouldbeshared
by many other people as well, and that it would be easy to demonstrate its effects on
judgments.
We once discovered with great delight that we had identical silly ideas about the
futureprofessionsofseveraltoddlerswebothknew.Wecouldidentifytheargumentative
three-year-old lawyer, the nerdy professor, the empathetic and mildly intrusive
psychotherapist. Of course these predictions were absurd, but we still found them
appealing.Itwasalsoclearthatourintuitionsweregovernedbytheresemblanceofeach
childtotheculturalstereotypeofaprofession.Theamusingexercisehelpedusdevelopa
theory that was emerging in our minds at the time, about the role of resemblance in
predictions.Wewentontotestandelaboratethattheoryindozensofexperiments,asin
thefollowingexample.
Asyouconsiderthenextquestion,pleaseassumethatStevewasselectedatrandom
fromarepresentativesample:
Anindividualhasbeendescribedbyaneighborasfollows:“Steveisveryshyand
withdrawn, invariably helpful but with little interest in people or in the world of
reality.Ameekandtidysoul,hehasaneedfororderandstructurutandstre,anda
passionfordetail.”IsStevemorelikelytobealibrarianorafarmer?
TheresemblanceofSteve’spersonalitytothatofastereotypicallibrarianstrikeseveryone
immediately,butequallyrelevantstatisticalconsiderationsarealmostalwaysignored.Did
it occur to you that there are more than 20 male farmers for each male librarian in the
United States? Because there are so many more farmers, it is almost certain that more
“meek and tidy” souls will be found on tractors than at library information desks.
However, we found that participants in our experiments ignored the relevant statistical
factsandreliedexclusivelyonresemblance.Weproposedthattheyusedresemblanceasa
simplifyingheuristic(roughly,aruleofthumb)tomakeadifficultjudgment.Thereliance
ontheheuristiccausedpredictablebiases(systematicerrors)intheirpredictions.
On another occasion, Amos and I wondered about the rate of divorce among
professorsinouruniversity.Wenoticedthatthequestiontriggeredasearchofmemoryfor
divorcedprofessorswekneworknewabout,andthatwejudgedthesizeofcategoriesby
the ease with which instances came to mind. We called this reliance on the ease of
memorysearchtheavailabilityheuristic.Inoneofourstudies,weaskedparticipantsto
answerasimplequestionaboutwordsinatypicalEnglishtext:
ConsidertheletterK.
IsKmorelikelytoappearasthefirstletterinawordORasthethirdletter?
AsanyScrabbleplayerknows,itismucheasiertocomeupwithwordsthatbeginwitha
particularletterthantofindwordsthathavethesameletterinthethirdposition.Thisis
trueforeveryletterofthealphabet.Wethereforeexpectedrespondentstoexaggeratethe
frequencyoflettersappearinginthefirstposition—eventhoseletters(suchasK,L,N,R,
V)whichinfactoccurmorefrequentlyinthethirdposition.Hereagain,therelianceona
heuristicproducesapredictablebiasinjudgments.Forexample,Irecentlycametodoubt
my long-held impression that adultery is more common among politicians than among
physiciansorlawyers.Ihadevencomeupwithexplanationsforthat“fact,”includingthe
aphrodisiac effect of power and the temptations of life away from home. I eventually
realizedthatthetransgressionsofpoliticiansaremuchmorelikelytobereportedthanthe
transgressions of lawyers and doctors. My intuitive impression could be due entirely to
journalists’choicesoftopicsandtomyrelianceontheavailabilityheuristic.
AmosandIspentseveralyearsstudyinganddocumentingbiasesofintuitivethinking
in various tasks—assigning probabilities to events, forecasting the future, assessing
hypotheses,andestimatingfrequencies.Inthefifthyearofourcollaboration,wepresented
ourmainfindingsinSciencemagazine,apublicationreadbyscholarsinmanydisciplines.
The article (which is reproduced in full at the end of this book) was titled “Judgment
Under Uncertainty: Heuristics and Biases.” It described the simplifying shortcuts of
intuitivethinkingandexplainedsome20biasesasmanifestationsoftheseheuristics—and
alsoasdemonstrationsoftheroleofheuristicsinjudgment.
Historiansofsciencehaveoftennotedthatatanygiventimescholarsinaparticular
fieldtendtosharebasicreshareassumptionsabouttheirsubject.Socialscientistsareno
exception; they rely on a view of human nature that provides the background of most
discussions of specific behaviors but is rarely questioned. Social scientists in the 1970s
broadlyacceptedtwoideasabouthumannature.First,peoplearegenerallyrational,and
their thinking is normally sound. Second, emotions such as fear, affection, and hatred
explain most of the occasions on which people depart from rationality. Our article
challengedbothassumptionswithoutdiscussingthemdirectly.Wedocumentedsystematic
errorsin thethinking of normalpeople, andwe tracedthese errors tothe designof the
machineryofcognitionratherthantothecorruptionofthoughtbyemotion.
Ourarticleattractedmuchmoreattentionthanwehadexpected,anditremainsoneof
themosthighlycitedworksinsocialscience(morethanthreehundredscholarlyarticles
referred to it in 2010). Scholars in other disciplines found it useful, and the ideas of
heuristics and biases have been used productively in many fields, including medical
diagnosis, legal judgment, intelligence analysis, philosophy, finance, statistics, and
militarystrategy.
Forexample,studentsofpolicyhavenotedthattheavailabilityheuristichelpsexplain
whysomeissuesarehighlysalientinthepublic’smindwhileothersareneglected.People
tendtoassesstherelativeimportanceofissuesbytheeasewithwhichtheyareretrieved
from memory—and this is largely determined by the extent of coverage in the media.
Frequentlymentionedtopicspopulatethemindevenasothersslipawayfromawareness.
Inturn,whatthemediachoosetoreportcorrespondstotheirviewofwhatiscurrentlyon
thepublic’smind.Itisnoaccidentthatauthoritarianregimesexertsubstantialpressureon
independentmedia.Becausepublicinterestismosteasilyarousedbydramaticeventsand
by celebrities, media feeding frenzies are common. For several weeks after Michael
Jackson’s death, for example, it was virtually impossible to find a television channel
reporting on another topic. In contrast, there is little coverage of critical but unexciting
issuesthatprovidelessdrama,suchasdecliningeducationalstandardsoroverinvestment
ofmedicalresourcesinthelastyearoflife.(AsIwritethis,Inoticethatmychoiceof
“little-covered”exampleswasguidedbyavailability.ThetopicsIchoseasexamplesare
mentioned often; equally important issues that are less available did not come to my
mind.)
We did not fully realize it at the time, but a key reason for the broad appeal of
“heuristics and biases” outside psychology was an incidental feature of our work: we
almostalwaysincludedinourarticlesthefulltextofthequestionswehadaskedourselves
and our respondents. These questions served as demonstrations for the reader, allowing
himtorecognizehowhisownthinkingwastrippedupbycognitivebiases.Ihopeyouhad
suchanexperienceasyoureadthequestionaboutStevethelibrarian,whichwasintended
tohelpyouappreciatethepowerofresemblanceasacuetoprobabilityandtoseehow
easyitistoignorerelevantstatisticalfacts.
The use of demonstrations provided scholars from diverse disciplines—notably
philosophersandeconomists—anunusualopportunitytoobservepossibleflawsintheir
own thinking. Having seen themselves fail, they became more likely to question the
dogmaticassumption,prevalentatthetime,thatthehumanmindisrationalandlogical.
The choice of method was crucial: if we had reported results of only conventional
experiments, the article would have been less noteworthy and less memorable.
Furthermore, skeptical readers would have distanced themselves from the results by
attributing judgment errors to the familiar l the famifecklessness of undergraduates, the
typicalparticipantsinpsychologicalstudies.Ofcourse,wedidnotchoosedemonstrations
overstandardexperimentsbecausewewantedtoinfluencephilosophersandeconomists.
We preferred demonstrations because they were more fun, and we were lucky in our
choiceofmethodaswellasinmanyotherways.Arecurrentthemeofthisbookisthat
luckplaysalargeroleineverystoryofsuccess;itisalmostalwayseasytoidentifyasmall
change in the story that would have turned a remarkable achievement into a mediocre
outcome.Ourstorywasnoexception.
Thereactiontoourworkwasnotuniformlypositive.Inparticular,ourfocusonbiases
wascriticizedassuggestinganunfairlynegativeviewofthemind.Asexpectedinnormal
science,someinvestigatorsrefinedourideasandothersofferedplausiblealternatives.By
and large, though, the idea that our minds are susceptible to systematic errors is now
generallyaccepted.Ourresearchonjudgmenthadfarmoreeffectonsocialsciencethan
wethoughtpossiblewhenwewereworkingonit.
Immediatelyaftercompletingourreviewofjudgment,weswitchedourattentionto
decision making under uncertainty. Our goal was to develop a psychological theory of
howpeoplemakedecisionsaboutsimplegambles.Forexample:Wouldyouacceptabet
onthetossofacoinwhereyouwin$130ifthecoinshowsheadsandlose$100ifitshows
tails? These elementary choices had long been used to examine broad questions about
decision making, such as the relative weight that people assign to sure things and to
uncertainoutcomes.Ourmethoddidnotchange:wespentmanydaysmakingupchoice
problems and examining whether our intuitive preferences conformed to the logic of
choice.Hereagain,asinjudgment,weobservedsystematicbiasesinourowndecisions,
intuitivepreferencesthatconsistentlyviolatedtherulesofrationalchoice.Fiveyearsafter
theSciencearticle,wepublished“ProspectTheory:AnAnalysisofDecisionUnderRisk,”
atheoryofchoicethatisbysomecountsmoreinfluentialthanourworkonjudgment,and
isoneofthefoundationsofbehavioraleconomics.
Untilgeographicalseparationmadeittoodifficulttogoon,AmosandIenjoyedthe
extraordinarygoodfortuneofasharedmindthatwassuperiortoourindividualmindsand
of a relationship that made our work fun as well as productive. Our collaboration on
judgmentanddecisionmakingwasthereasonfortheNobelPrizethatIreceivedin2002,
whichAmoswouldhavesharedhadhenotdied,agedfifty-nine,in1996.
Wherewearenow
ThisbookisnotintendedasanexpositionoftheearlyresearchthatAmosandIconducted
together,ataskthathasbeenablycarriedoutbymanyauthorsovertheyears.Mymain
aimhereistopresentaviewofhowthemindworksthatdrawsonrecentdevelopmentsin
cognitiveandsocialpsychology.Oneofthemoreimportantdevelopmentsisthatwenow
understandthemarvelsaswellastheflawsofintuitivethought.
Amos and I did not address accurate intuitions beyond the casual statement that
judgmentheuristics“arequiteuseful,butsometimesleadtosevereandsystematicerrors.”
We focused on biases, both because we found them interesting in their own right and
becausetheyprovidedevidencefortheheuristicsofjudgment.Wedidnotaskourselves
whether all intuitive judgments under uncertainty are produced by the heuristics we
studied;itisnowclearthattheyarenot.Inparticular,theaccurateintuitionsofexpertsare
betterexplainedbytheeffectsofprolongedpracticethanbyheuristics.Wecannowdraw
aricherandigharichemorebalancedpicture,inwhichskillandheuristicsarealternative
sourcesofintuitivejudgmentsandchoices.
The psychologist Gary Klein tells the story of a team of firefighters that entered a
houseinwhichthekitchenwasonfire.Soonaftertheystartedhosingdownthekitchen,
thecommanderheardhimselfshout,“Let’sgetoutofhere!”withoutrealizingwhy.The
floorcollapsedalmostimmediatelyafterthefirefightersescaped.Onlyafterthefactdid
thecommanderrealizethatthefirehadbeenunusuallyquietandthathisearshadbeen
unusually hot. Together, these impressions prompted what he called a “sixth sense of
danger.”Hehadnoideawhatwaswrong,butheknewsomethingwaswrong.Itturnedout
thattheheartofthefirehadnotbeeninthekitchenbutinthebasementbeneathwherethe
menhadstood.
Wehaveallheardsuchstoriesofexpertintuition:thechessmasterwhowalkspasta
streetgameandannounces“Whitematesinthree”withoutstopping,orthephysicianwho
makesacomplexdiagnosisafterasingleglanceatapatient.Expertintuitionstrikesusas
magical,butitisnot.Indeed,eachofusperformsfeatsofintuitiveexpertisemanytimes
eachday.Mostofusarepitch-perfectindetectingangerinthefirstwordofatelephone
call, recognize as we enter a room that we were the subject of the conversation, and
quicklyreacttosubtlesignsthatthedriverofthecarinthenextlaneisdangerous.Our
everyday intuitive abilities are no less marvelous than the striking insights of an
experiencedfirefighterorphysician—onlymorecommon.
The psychology of accurate intuition involves no magic. Perhaps the best short
statementofitisbythegreatHerbertSimon,whostudiedchessmastersandshowedthat
afterthousandsofhoursofpracticetheycometoseethepiecesontheboarddifferently
from the rest of us. You can feel Simon’s impatience with the mythologizing of expert
intuitionwhenhewrites:“Thesituationhasprovidedacue;thiscuehasgiventheexpert
accesstoinformationstoredinmemory,andtheinformationprovidestheanswer.Intuition
isnothingmoreandnothinglessthanrecognition.”
Wearenotsurprisedwhenatwo-year-oldlooksatadogandsays“doggie!”because
we are used to the miracle of children learning to recognize and name things.Simon’s
point is that the miracles of expert intuition have the same character. Valid intuitions
developwhenexpertshavelearnedtorecognizefamiliarelementsinanewsituationand
toactinamannerthatisappropriatetoit.Goodintuitivejudgmentscometomindwith
thesameimmediacyas“doggie!”
Unfortunately, professionals’ intuitions do not all arise from true expertise. Many
yearsagoIvisitedthechiefinvestmentofficerofalargefinancialfirm,whotoldmethat
hehadjustinvestedsometensofmillionsofdollarsinthestockofFordMotorCompany.
WhenIaskedhowhehadmadethatdecision,herepliedthathehadrecentlyattendedan
automobileshowandhadbeenimpressed.“Boy,dotheyknowhowtomakeacar!”was
hisexplanation.Hemadeitveryclearthathetrustedhisgutfeelingandwassatisfiedwith
himselfandwithhisdecision.Ifounditremarkablethathehadapparentlynotconsidered
the one question that an economist would call relevant: Is Ford stock currently
underpriced? Instead, he had listened to his intuition; he liked the cars, he liked the
company, and he liked the idea of owning its stock. From what we know about the
accuracyofstockpicking,itisreasonabletobelievethathedidnotknowwhathewas
doing.
The specific heuristics that Amos and I studied proviheitudied de little help in
understandinghowtheexecutivecametoinvestinFordstock,butabroaderconceptionof
heuristicsnowexists,whichoffersagoodaccount.Animportantadvanceisthatemotion
nowloomsmuchlargerinourunderstandingofintuitivejudgmentsandchoicesthanitdid
inthepast.Theexecutive’sdecisionwouldtodaybedescribedasanexampleoftheaffect
heuristic, where judgments and decisions are guided directly by feelings of liking and
disliking,withlittledeliberationorreasoning.
When confronted with a problem—choosing a chess move or deciding whether to
investinastock—themachineryofintuitivethoughtdoesthebestitcan.Iftheindividual
has relevant expertise, she will recognize the situation, and the intuitive solution that
comestohermindislikelytobecorrect.Thisiswhathappenswhenachessmasterlooks
atacomplexposition:thefewmovesthatimmediatelyoccurtohimareallstrong.When
thequestionisdifficultandaskilledsolutionisnotavailable,intuitionstillhasashot:an
answermaycometomindquickly—butitisnotananswertotheoriginalquestion.The
question that the executive faced (should I invest in Ford stock?) was difficult, but the
answertoaneasierandrelatedquestion(doIlikeFordcars?)camereadilytohismind
anddeterminedhischoice.Thisistheessenceofintuitiveheuristics:whenfacedwitha
difficult question, we often answer an easier one instead, usually without noticing the
substitution.
Thespontaneoussearchforanintuitivesolutionsometimesfails—neitheranexpert
solution nor a heuristic answer comes to mind. In such cases we often find ourselves
switching to a slower, more deliberate and effortful form of thinking. This is the slow
thinkingofthetitle.Fastthinkingincludesbothvariantsofintuitivethought—theexpert
and the heuristic—as well as the entirely automatic mental activities of perception and
memory,theoperationsthatenableyoutoknowthereisalamponyourdeskorretrieve
thenameofthecapitalofRussia.
The distinction between fast and slow thinking has been explored by many
psychologistsoverthelasttwenty-fiveyears.ForreasonsthatIexplainmorefullyinthe
nextchapter,Idescribementallifebythemetaphoroftwoagents,calledSystem1and
System2, whichrespectivelyproducefastandslowthinking.Ispeakofthe featuresof
intuitiveanddeliberatethoughtasiftheyweretraitsanddispositionsoftwocharactersin
yourmind.Inthepicturethatemergesfromrecentresearch,theintuitiveSystem1ismore
influentialthanyourexperiencetellsyou,anditisthesecretauthorofmanyofthechoices
andjudgmentsyoumake.MostofthisbookisabouttheworkingsofSystem1andthe
mutualinfluencesbetweenitandSystem2.
WhatComesNext
Thebookisdividedintofiveparts.Part1presentsthebasicelementsofatwo-systems
approach to judgment and choice. It elaborates the distinction between the automatic
operations of System 1 and the controlled operations of System 2, and shows how
associativememory,thecoreofSystem1,continuallyconstructsacoherentinterpretation
ofwhatisgoingoninourworldatanyinstant.Iattempttogiveasenseofthecomplexity
and richness of the automatic and often unconscious processes that underlie intuitive
thinking,andofhowtheseautomaticprocessesexplaintheheuristicsofjudgment.Agoal
istointroducealanguageforthinkingandtalkingaboutthemind.
Part2updatesthestudyofjudgmentheuristicsandexploresamajorpuzzle:Whyisit
sodifficultforustothinkstatistically?Weeasilythinkassociativelm1associay,wethink
metaphorically, we think causally, but statistics requires thinking about many things at
once,whichissomethingthatSystem1isnotdesignedtodo.
ThedifficultiesofstatisticalthinkingcontributetothemainthemeofPart3,which
describesapuzzlinglimitationofourmind:ourexcessiveconfidenceinwhatwebelieve
weknow,andourapparentinabilitytoacknowledgethefullextentofourignoranceand
the uncertainty of the world we live in. We are prone to overestimate how much we
understand about the world and to underestimate the role of chance in events.
Overconfidenceisfedbytheillusorycertaintyofhindsight.Myviewsonthistopichave
beeninfluencedbyNassimTaleb,theauthorofTheBlackSwan.Ihopeforwatercooler
conversationsthatintelligentlyexplorethelessonsthatcanbelearnedfromthepastwhile
resistingthelureofhindsightandtheillusionofcertainty.
Thefocusofpart4isaconversationwiththedisciplineofeconomicsonthenatureof
decisionmakingandontheassumptionthateconomicagentsarerational.Thissectionof
thebookprovidesacurrentview,informedbythetwo-systemmodel,ofthekeyconcepts
ofprospecttheory,themodelofchoicethatAmosandIpublishedin1979.Subsequent
chaptersaddressseveralwayshumanchoicesdeviatefromtherulesofrationality.Ideal
with the unfortunate tendency to treat problems in isolation, and with framing effects,
where decisions are shaped by inconsequential features of choice problems. These
observations, which are readily explained by the features of System 1, present a deep
challengetotherationalityassumptionfavoredinstandardeconomics.
Part5describesrecentresearchthathasintroducedadistinctionbetweentwoselves,
theexperiencingselfandtherememberingself,whichdonothavethesameinterests.For
example,wecanexposepeopletotwopainfulexperiences.Oneoftheseexperiencesis
strictlyworsethantheother,becauseitislonger.Buttheautomaticformationofmemories
—afeatureofSystem 1—has itsrules,whichwe can exploitsothattheworse episode
leaves a better memory. When people later choose which episode to repeat, they are,
naturally, guided by their remembering self and expose themselves (their experiencing
self) to unnecessary pain. The distinction between two selves is applied to the
measurementofwell-being,where we findagainthatwhat makestheexperiencingself
happyisnotquitethesameaswhatsatisfiestherememberingself.Howtwoselveswithin
asingle bodycan pursue happinessraises somedifficultquestions,both for individuals
andforsocietiesthatviewthewell-beingofthepopulationasapolicyobjective.
Aconcludingchapterexplores,inreverseorder,theimplicationsofthreedistinctions
drawn in the book: between the experiencing and the remembering selves, between the
conceptionofagentsinclassicaleconomicsandinbehavioraleconomics(whichborrows
from psychology), and between the automatic System 1 and the effortful System 2. I
returntothevirtuesofeducatinggossipandtowhatorganizationsmightdotoimprovethe
qualityofjudgmentsanddecisionsthataremadeontheirbehalf.
TwoarticlesIwrotewithAmosarereproducedasappendixestothebook.Thefirstis
thereviewofjudgmentunderuncertaintythatIdescribedearlier.Thesecond,publishedin
1984,summarizesprospecttheoryaswellasourstudiesofframingeffects.Thearticles
present the contributions that were cited by the Nobel committee—and you may be
surprisedbyhowsimpletheyare.Readingthemwillgiveyouasenseofhowmuchwe
knewalongtimeago,andalsoofhowmuchwehavelearnedinrecentdecades.
P
Part1
P
TwoSystems
P
TheCharactersoftheStory
Toobserveyourmindinautomaticmode,glanceattheimagebelow.
Figure1
Yourexperienceasyoulookatthewoman’sfaceseamlesslycombineswhatwenormally
call seeing and intuitive thinking. As surely and quickly as you saw that the young
woman’shairisdark,youknewsheisangry.Furthermore,whatyousawextendedinto
thefuture.Yousensedthatthiswomanisabouttosaysomeveryunkindwords,probably
inaloudandstridentvoice.Apremonitionofwhatshewasgoingtodonextcametomind
automaticallyandeffortlessly.Youdidnotintendtoassesshermoodortoanticipatewhat
shemightdo,andyourreactiontothepicturedidnothavethefeelofsomethingyoudid.
Itjusthappenedtoyou.Itwasaninstanceoffastthinking.
Nowlookatthefollowingproblem:
17×24
Youknewimmediatelythatthisisamultiplicationproblem,andprobablyknewthatyou
couldsolveit,withpaperandpencil,ifnotwithout.Youalsohadsomevagueintuitive
knowledge of the range of possible results. You would be quick to recognize that both
12,609and123areimplausible.Withoutspendingsometimeontheproblem,however,
youwouldnotbecertainthattheanswerisnot568.Aprecisesolutiondidnotcometo
mind,andyoufeltthatyoucouldchoosewhetherornottoengageinthecomputation.If
youhavenotdonesoyet,youshouldattemptthemultiplicationproblemnow,completing
atleastpartofit.
Youexperiencedslow thinkingas youproceeded through a sequence ofsteps. You
firstretrievedfrommemorythecognitiveprogramformultiplicationthatyoulearnedin
school,thenyouimplementedit.Carryingoutthecomputationwasastrain.Youfeltthe
burdenofholdingmuchmaterialinmemory,asyouneededtokeeptrackofwhereyou
were and of where you were going, while holding on to the intermediate result. The
processwasmentalwork:deliberate,effortful,andorderly—aprototypeofslowthinking.
Thecomputationwasnotonlyaneventinyourmind;yourbodywasalsoinvolved.Your
muscles tensed up, your blood pressure rose, and your heart rate increased. Someone
lookingcloselyatyoureyeswhileyoutackledthisproblemwouldhaveseenyourpupils
dilate.Yourpupilscontractedbacktonormalsizeassoonasyouendedyourwork—when
youfoundtheanswer(whichis408,bytheway)orwhenyougaveup.
TwoSystems
Psychologists have been intensely interested for several decades in the two modagee fi
Pn=“ceesofthinkingevokedbythepictureoftheangrywomanandbythemultiplication
problem,andhaveofferedmanylabelsforthem.Iadopttermsoriginallyproposedbythe
psychologists Keith Stanovich and Richard West, and will refer to two systems in the
mind,System1andSystem2.
System1operatesautomaticallyandquickly,withlittleornoeffortandnosenseof
voluntarycontrol.
System2allocatesattentiontotheeffortfulmentalactivitiesthatdemandit,including
complex computations. The operations of System 2 are often associated with the
subjectiveexperienceofagency,choice,andconcentration.
ThelabelsofSystem1andSystem2arewidelyusedinpsychology,butIgofurtherthan
mostinthisbook,whichyoucanreadasapsychodramawithtwocharacters.
Whenwethinkofourselves,weidentifywithSystem2,theconscious,reasoningself
thathasbeliefs,makeschoices,anddecideswhattothinkaboutandwhattodo.Although
System2believesitselftobewheretheactionis,theautomaticSystem1istheheroofthe
book.IdescribeSystem1aseffortlesslyoriginatingimpressionsandfeelingsthatarethe
main sources of the explicit beliefs and deliberate choices of System 2. The automatic
operations of System 1 generate surprisingly complex patterns of ideas, but only the
slower System 2 can construct thoughts in an orderly series of steps. I also describe
circumstances in which System 2 takes over, overruling the freewheeling impulses and
associationsofSystem1.Youwillbeinvitedtothinkofthetwosystemsasagentswith
theirindividualabilities,limitations,andfunctions.
Inroughorderofcomplexity,herearesomeexamplesoftheautomaticactivitiesthat
areattributedtoSystem1:
Detectthatoneobjectismoredistantthananother.
Orienttothesourceofasuddensound.
Completethephrase“breadand…”
Makea“disgustface”whenshownahorriblepicture.
Detecthostilityinavoice.
Answerto2+2=?
Readwordsonlargebillboards.
Driveacaronanemptyroad.
Findastrongmoveinchess(ifyouareachessmaster).
Understandsimplesentences.
Recognize that a “meek and tidy soul with a passion for detail” resembles an
occupationalstereotype.
All these mental events belong with the angry woman—they occur automatically and
requirelittleornoeffort.ThecapabilitiesofSystem1includeinnateskillsthatweshare
with other animals. We are born prepared to perceive the world around us, recognize
objects,orientattention,avoidlosses,andfearspiders.Othermentalactivitiesbecomefast
and automatic through prolonged practice. System 1 has learned associations between
ideas(thecapitalofFrance?);ithasalsolearnedskillssuchasreadingandunderstanding
nuancesofsocialsituations.Someskills,suchasfindingstrongchessmoves,areacquired
only by specialized experts. Others are widely shared. Detecting the similarity of a
personalitysketchtoanoccupatioheinoccupatnalstereotyperequiresbroadknowledgeof
the language and the culture, which most of us possess. The knowledge is stored in
memoryandaccessedwithoutintentionandwithouteffort.
Severalofthementalactionsinthelistarecompletelyinvoluntary.Youcannotrefrain
fromunderstanding simplesentences inyour ownlanguage orfrom orientingto aloud
unexpected sound, nor can you prevent yourself from knowing that 2 + 2 = 4 or from
thinking of Paris when the capital of France is mentioned. Other activities, such as
chewing, are susceptible to voluntary control but normally run on automatic pilot. The
controlofattentionissharedbythetwosystems.Orientingtoaloudsoundisnormallyan
involuntaryoperationofSystem1,whichimmediatelymobilizesthevoluntaryattention
ofSystem2.Youmaybeabletoresistturningtowardthesourceofaloudandoffensive
comment at a crowded party, but even if your head does not move, your attention is
initiallydirectedtoit,atleastforawhile.However,attentioncanbemovedawayfroman
unwantedfocus,primarilybyfocusingintentlyonanothertarget.
ThehighlydiverseoperationsofSystem2haveonefeatureincommon:theyrequire
attentionandaredisruptedwhenattentionisdrawnaway.Herearesomeexamples:
Braceforthestarterguninarace.
Focusattentionontheclownsinthecircus.
Focusonthevoiceofaparticularpersoninacrowdedandnoisyroom.
Lookforawomanwithwhitehair.
Searchmemorytoidentifyasurprisingsound.
Maintainafasterwalkingspeedthanisnaturalforyou.
Monitortheappropriatenessofyourbehaviorinasocialsituation.
Counttheoccurrencesoftheletterainapageoftext.
Tellsomeoneyourphonenumber.
Parkinanarrowspace(formostpeopleexceptgarageattendants).
Comparetwowashingmachinesforoverallvalue.
Filloutataxform.
Checkthevalidityofacomplexlogicalargument.
Inallthesesituationsyoumustpayattention,andyouwillperformlesswell,ornotatall,
ifyou arenot readyor ifyour attentionis directedinappropriately.System 2has some
ability to change the way System 1 works, by programming the normally automatic
functionsofattentionandmemory.Whenwaitingforarelativeatabusytrainstation,for
example,youcansetyourselfatwilltolookforawhite-hairedwomanorabeardedman,
andtherebyincreasethelikelihoodofdetectingyourrelativefromadistance.Youcanset
your memory to search for capital cities that start with N or for French existentialist
novels. And when you rent a car at London’s Heathrow Airport, the attendant will
probablyremindyou that“wedriveontheleftsideoftheroadoverhere.”Inallthese
cases,youareaskedtodosomethingthatdoesnotcomenaturally,andyouwillfindthat
theconsistentmaintenanceofasetrequirescontinuousexertionofatleastsomeeffort.
The often-used phrase “pay attention” is apt: you dispose of a limited budget of
attentionthatyoucanallocatetoactivities,andifyoutrytoi>Cyoutrytgobeyondyour
budget, you will fail. It is the mark of effortful activities that they interfere with each
other,whichiswhyitisdifficultorimpossibletoconductseveralatonce.Youcouldnot
compute the product of 17 × 24 while making a left turn into dense traffic, and you
certainlyshouldnottry.Youcandoseveralthingsatonce,butonlyiftheyareeasyand
undemanding.Youareprobablysafecarryingonaconversationwithapassengerwhile
drivingonanemptyhighway,andmanyparentshavediscovered,perhapswithsomeguilt,
thattheycanreadastorytoachildwhilethinkingofsomethingelse.
Everyone has some awareness of the limited capacity of attention, and our social
behaviormakesallowancesfortheselimitations.Whenthedriverofacarisovertakinga
truckonanarrowroad, forexample,adultpassengersquitesensiblystop talking. They
know that distracting the driver is not a good idea, and they also suspect that he is
temporarilydeafandwillnothearwhattheysay.
Intense focusing on a task can make people effectively blind, even to stimuli that
normallyattractattention.ThemostdramaticdemonstrationwasofferedbyChristopher
ChabrisandDanielSimonsintheirbookTheInvisibleGorilla.Theyconstructedashort
filmoftwoteamspassingbasketballs,oneteamwearingwhiteshirts,theotherwearing
black.Theviewersofthefilmareinstructedtocountthenumberofpassesmadebythe
white team, ignoring the black players. This task is difficult and completely absorbing.
Halfway through the video, a woman wearing a gorilla suit appears, crosses the court,
thumpsherchest,andmoveson.Thegorillaisinviewfor9seconds.Manythousandsof
peoplehaveseenthevideo,andabouthalfofthemdonotnoticeanythingunusual.Itis
thecountingtask—andespeciallytheinstructiontoignoreoneoftheteams—thatcauses
the blindness. No one who watches the video without that task would miss the gorilla.
Seeing and orienting are automatic functions of System 1, but they depend on the
allocation of some attention to the relevant stimulus. The authors note that the most
remarkableobservationoftheirstudyisthatpeoplefinditsresultsverysurprising.Indeed,
theviewerswhofailtoseethegorillaareinitiallysurethatitwasnotthere—theycannot
imagine missing such a striking event. The gorilla study illustrates two important facts
aboutourminds:wecanbeblindtotheobvious,andwearealsoblindtoourblindness.
PlotSynopsis
Theinteractionofthetwosystemsisarecurrentthemeofthebook,andabriefsynopsisof
theplotisinorder.InthestoryIwilltell,Systems1and2arebothactivewheneverwe
areawake.System1runsautomaticallyandSystem2isnormallyinacomfortablelow-
effortmode,inwhichonlyafractionof its capacity is engaged.System1continuously
generates suggestions for System 2: impressions, intuitions, intentions, and feelings. If
endorsedbySystem2,impressionsandintuitionsturnintobeliefs,andimpulsesturninto
voluntaryactions.Whenallgoessmoothly,whichismostofthetime,System2adoptsthe
suggestions of System 1 with little or no modification. You generally believe your
impressionsandactonyourdesires,andthatisfine—usually.
WhenSystem1runsintodifficulty,itcallsonSystem2tosupportmoredetailedand
specific processing that may solve the problem of the moment. System 2 is mobilized
whenaquestionarisesforwhichSystem1doesnotofferananswer,asprobablyhappened
to you when you encountered the multiplication problem 17 × 24. You can also feel a
surgeofconsciousattentionwheneveryouaresurprised.System2isactiv”><2isactated
whenaneventisdetectedthatviolatesthemodeloftheworldthatSystem1maintains.In
that world, lamps do not jump, cats do not bark, and gorillas do not cross basketball
courts. The gorilla experiment demonstrates that some attention is needed for the
surprisingstimulustobedetected.Surprisethenactivatesandorientsyourattention:you
willstare,andyouwillsearchyourmemoryforastorythatmakessenseofthesurprising
event.System2isalsocreditedwiththecontinuousmonitoringofyourownbehavior—
thecontrolthatkeepsyoupolitewhenyouareangry,andalertwhenyouaredrivingat
night.System2ismobilizedtoincreasedeffortwhenitdetectsanerrorabouttobemade.
Rememberatimewhenyoualmostblurtedoutanoffensiveremark andnotehowhard
youworkedtorestorecontrol.Insummary,mostofwhatyou(yourSystem2)thinkand
dooriginatesinyourSystem1,butSystem2takesoverwhenthingsgetdifficult,andit
normallyhasthelastword.
ThedivisionoflaborbetweenSystem1andSystem2ishighlyefficient:itminimizes
effortandoptimizesperformance.Thearrangementworkswellmostofthetimebecause
System 1 is generally very good at what it does: its models of familiar situations are
accurate,itsshort-termpredictionsareusuallyaccurateaswell,anditsinitialreactionsto
challengesareswiftandgenerallyappropriate.System1hasbiases,however,systematic
errorsthatitispronetomakeinspecifiedcircumstances.Asweshallsee,itsometimes
answerseasierquestionsthantheoneitwasasked,andithaslittleunderstandingoflogic
andstatistics.OnefurtherlimitationofSystem1isthatitcannotbeturnedoff.Ifyouare
shown a word on the screen in a language you know, you will read it—unless your
attentionistotallyfocusedelsewhere.
Conflict
Figure 2 is a variant of a classic experiment that produces a conflict between the two
systems.Youshouldtrytheexercisebeforereadingon.
Figure2
Youwerealmostcertainlysuccessfulinsayingthecorrectwordsinbothtasks,andyou
surelydiscoveredthatsomepartsofeachtaskweremucheasierthanothers.Whenyou
identifiedupper-andlowercase,theleft-handcolumnwaseasyandtheright-handcolumn
caused you to slow down and perhaps to stammer or stumble. When you named the
positionofwords,theleft-handcolumnwasdifficultandtheright-handcolumnwasmuch
easier.
ThesetasksengageSystem2,becausesaying“upper/lower”or“right/left”isnotwhat
youroutinelydowhenlookingdownacolumnofwords.Oneofthethingsyoudidtoset
yourselfforthetaskwastoprogramyourmemorysothattherelevantwords(upperand
lowerforthefirsttask)were“onthetipofyourtongue.”Theprioritizingofthechosen
wordsis effectiveandthe mildtemptationto read otherwords was fairlyeasy toresist
whenyouwentthroughthefirstcolumn.Butthesecondcolumnwasdifferent,becauseit
containedwordsforwhichyouwereset,andyoucouldnotignorethem.Youweremostly
able to respond correctly, but overcoming the competing response was a strain, and it
slowedyoudown.Youexperiencedaconflictbetweenataskthatyouintendedtocarry
outandanautomaticresponsethatinterferedwithit.
ConflictbetweenanautomaticreactionandanintentiontoconWhetiontoctrolitis
commoninourlives.Weareallfamiliarwiththeexperienceoftryingnottostareatthe
oddlydressedcoupleattheneighboringtableinarestaurant.Wealsoknowwhatitislike
toforceourattentiononaboringbook,whenweconstantlyfindourselvesreturningtothe
pointatwhichthereadinglostitsmeaning.Wherewintersarehard,manydrivershave
memoriesoftheircarskiddingoutofcontrolontheiceandofthestruggletofollowwell-
rehearsedinstructionsthatnegatewhattheywouldnaturallydo:“Steerintotheskid,and
whatever you do, do not touch the brakes!” And every human being has had the
experience of not telling someone to go to hell. One of the tasks of System 2 is to
overcometheimpulsesofSystem1.Inotherwords,System2isinchargeofself-control.
Illusions
ToappreciatetheautonomyofSystem1,aswellasthedistinctionbetweenimpressions
andbeliefs,takeagoodlookatfigure3.
This picture is unremarkable: two horizontal lines of different lengths, with fins
appended, pointing in different directions. The bottom line is obviously longer than the
oneaboveit.Thatiswhatweallsee,andwenaturallybelievewhatwesee.Ifyouhave
already encountered this image, however, you recognize it as the famous Müller-Lyer
illusion.Asyoucaneasilyconfirmbymeasuringthemwitharuler,thehorizontallines
areinfactidenticalinlength.
Figure3
Nowthatyouhavemeasuredthelines,you—yourSystem2,theconsciousbeingyou
call“I”—haveanewbelief:youknowthatthelinesareequallylong.Ifaskedabouttheir
length,youwillsaywhatyouknow.Butyoustillseethebottomlineaslonger.Youhave
chosentobelievethemeasurement,butyoucannotpreventSystem1fromdoingitsthing;
you cannot decide to see the lines as equal, although you know they are. To resist the
illusion,thereisonlyonethingyoucando:youmustlearntomistrustyourimpressionsof
thelengthoflineswhenfinsareattachedtothem.Toimplementthatrule,youmustbe
abletorecognizetheillusorypatternandrecallwhatyouknowaboutit.Ifyoucandothis,
youwillneveragainbefooledbytheMüller-Lyerillusion.Butyouwillstillseeoneline
aslongerthantheother.
Not all illusions are visual. There are illusions of thought, which we call cognitive
illusions. As a graduate student, I attended some courses on the art and science of
psychotherapy. During one of these lectures, our teacher imparted a morsel of clinical
wisdom.Thisiswhathetoldus:“Youwillfromtimetotimemeetapatientwhosharesa
disturbingtaleofmultiplemistakesinhisprevioustreatment.Hehasbeenseenbyseveral
clinicians, and all failed him. The patient can lucidly describe how his therapists
misunderstood him, but he has quickly perceived that you are different. You share the
samefeeling,areconvincedthatyouunderstandhim,andwillbeabletohelp.”Atthis
pointmyteacherraisedhisvoiceashesaid,“Donoteventhinkoftakingonthispatient!
Throwhimoutoftheoffice!Heismostlikelyapsychopathandyouwillnotbeableto
helphim.”
ManyyearslaterIlearnedthattheteacherhadwarnedusagainstpsychopathiccharm,
and the leading authority in the strn y in the udy of psychopathy confirmed that the
teachers advice was sound. The analogy to the Müller-Lyer illusion is close. What we
werebeingtaughtwasnothowtofeelaboutthatpatient.Ourteachertookitforgranted
thatthesympathywewouldfeelforthepatientwouldnotbeunderourcontrol;itwould
arisefromSystem1.Furthermore,wewerenotbeingtaughttobegenerallysuspiciousof
our feelings about patients. We were told that a strong attraction to a patient with a
repeatedhistoryoffailedtreatmentisadangersign—likethefinsontheparallellines.It
isanillusion—acognitiveillusion—andI(System2)wastaughthowtorecognizeitand
advisednottobelieveitoractonit.
Thequestionthatismostoftenaskedaboutcognitiveillusionsiswhethertheycanbe
overcome.Themessageoftheseexamplesisnotencouraging.BecauseSystem1operates
automaticallyandcannotbeturnedoffatwill,errorsofintuitivethoughtareoftendifficult
toprevent.Biasescannotalwaysbeavoided,becauseSystem2mayhavenocluetothe
error.Evenwhencuestolikelyerrorsareavailable,errorscanbepreventedonlybythe
enhanced monitoring and effortful activity of System 2. As a way to live your life,
however, continuous vigilance is not necessarily good, and it is certainly impractical.
Constantlyquestioningour ownthinkingwouldbeimpossiblytedious,andSystem2is
much too slow and inefficient to serve as a substitute for System 1 in making routine
decisions. The best we can do is a compromise: learn to recognize situations in which
mistakesarelikelyandtryhardertoavoidsignificantmistakeswhenthestakesarehigh.
Thepremiseofthisbookisthatitiseasiertorecognizeotherpeople’smistakesthanour
own.
UsefulFictions
Youhavebeeninvitedtothinkofthetwosystemsasagentswithinthemind,withtheir
individualpersonalities,abilities,andlimitations.Iwilloftenusesentencesinwhichthe
systemsarethesubjects,suchas,“System2calculatesproducts.”
The use of such language is considered a sin in the professional circles in which I
travel,becauseitseemstoexplainthethoughtsandactionsofapersonbythethoughts
and actions of little people inside the person’s head. Grammatically the sentence about
System2issimilarto“Thebutlerstealsthepettycash.”Mycolleagueswouldpointout
thatthebutlersaction actually explainsthedisappearance ofthecash, andtheyrightly
questionwhetherthesentenceaboutSystem2explainshowproductsarecalculated.My
answeristhatthebriefactivesentencethatattributescalculationtoSystem2isintended
asa description,not an explanation.It ismeaningful only becauseof whatyou already
knowaboutSystem2.Itisshorthandforthefollowing:“Mentalarithmeticisavoluntary
activity that requires effort, should not be performed while making a left turn, and is
associatedwithdilatedpupilsandanacceleratedheartrate.”
Similarly, the statement that “highway driving under routine conditions is left to
System1”meansthatsteeringthecararoundabendisautomaticandalmosteffortless.It
alsoimpliesthatanexperienceddrivercandriveonanemptyhighwaywhileconductinga
conversation. Finally, “System 2 prevented James from reacting foolishly to the insult”
means that James would have been more aggressive in his response if his capacity for
effortfulcontrolhadbeendisrupted(forexample,ifhehadbeendrunk).
System1andSystem2aresocentraltothestoryItellinthisbookthatImustmakeit
absolutelyclear thatthey are217at they a fictitiouscharacters. Systems1 and 2are not
systemsinthestandardsenseofentitieswithinteractingaspectsorparts.Andthereisno
onepartofthebrainthateitherofthesystemswouldcallhome.Youmaywellask:What
isthepointofintroducingfictitiouscharacterswithuglynamesintoaseriousbook?The
answeristhatthecharactersareusefulbecauseofsomequirksofourminds,yoursand
mine.Asentenceisunderstoodmoreeasilyifitdescribeswhatanagent(System2)does
thanifitdescribeswhatsomethingis,whatpropertiesithas.Inotherwords,“System2”is
abettersubjectforasentencethan“mentalarithmetic.”Themind—especiallySystem1—
appearstohaveaspecialaptitudefortheconstructionandinterpretationofstoriesabout
active agents, who have personalities, habits, and abilities. You quickly formed a bad
opinion of the thieving butler, you expect more bad behavior from him, and you will
rememberhimforawhile.Thisisalsomyhopeforthelanguageofsystems.
Why call them System 1 and System 2 rather than the more descriptive “automatic
system”and“effortfulsystem”?Thereasonissimple:“Automaticsystem”takeslongerto
say than “System 1” and therefore takes more space in your working memory. This
matters, because anything that occupies your working memory reduces your ability to
think. You should treat “System 1” and “System 2” as nicknames, like Bob and Joe,
identifyingcharactersthatyouwillgettoknowoverthecourseofthisbook.Thefictitious
systemsmakeiteasierformetothinkaboutjudgmentandchoice,andwillmakeiteasier
foryoutounderstandwhatIsay.
SpeakingofSystem1andSystem2
“Hehadanimpression,butsomeofhisimpressionsareillusions.”
“ThiswasapureSystem1response.Shereactedtothethreatbeforesherecognized
it.”
“ThisisyourSystem1talking.SlowdownandletyourSystem2takecontrol.”
P
AttentionandEffort
Intheunlikelyeventofthisbookbeingmadeintoafilm,System2wouldbeasupporting
characterwhobelievesherselfto bethehero.Thedefining feature ofSystem2,in this
story,isthatitsoperationsareeffortful,andoneofitsmaincharacteristicsislaziness,a
reluctancetoinvestmoreeffortthanisstrictlynecessary.Asaconsequence,thethoughts
and actions that System 2 believes it has chosen are often guided by the figure at the
center of the story, System 1. However, there are vital tasks that only System 2 can
perform because they require effort and acts of self-control in which the intuitions and
impulsesofSystem1areovercome.
MentalEffort
IfyouwishtoexperienceyourSystem2workingatfulltilt,thefollowingexercisewill
do; it should br”0%e ca Tting you to the limits of your cognitive abilities within 5
seconds.Tostart,makeupseveralstringsof4digits,alldifferent,andwriteeachstringon
anindexcard.Placeablankcardontopofthedeck.Thetaskthatyouwillperformis
calledAdd-1.Hereishowitgoes:
Startbeatingasteadyrhythm(orbetteryet,setametronomeat1/sec).Removethe
blankcardandreadthefourdigitsaloud.Waitfortwobeats,thenreportastringin
whicheach of the original digitsis incrementedby 1. If the digitson thecard are
5294,thecorrectresponseis6305.Keepingtherhythmisimportant.
FewpeoplecancopewithmorethanfourdigitsintheAdd-1task,butifyouwantaharder
challenge,pleasetryAdd-3.
Ifyouwouldliketoknowwhatyourbodyisdoingwhileyourmindishardatwork,
setuptwopilesofbooksonasturdytable,placeavideocameraononeandleanyour
chinon theother, getthe videogoing, andstare atthe cameralens whileyou workon
Add-1 or Add-3 exercises. Later, you will find in the changing size of your pupils a
faithfulrecordofhowhardyouworked.
IhavealongpersonalhistorywiththeAdd-1task.EarlyinmycareerIspentayearat
the University of Michigan, as a visitor in a laboratory that studied hypnosis. Casting
aboutforausefultopicofresearch,IfoundanarticleinScientificAmericaninwhichthe
psychologistEckhardHessdescribedthepupiloftheeyeasawindowtothesoul.Ireread
it recently and again found it inspiring. It begins with Hess reportingthat his wife had
noticedhispupilswideningashewatchedbeautifulnaturepictures,anditendswithtwo
striking pictures of the same good-looking woman, who somehow appears much more
attractive in one than in the other. There is only one difference: the pupils of the eyes
appear dilated in the attractive picture and constricted in the other. Hess also wrote of
belladonna,apupil-dilatingsubstancethatwasusedasacosmetic,andofbazaarshoppers
whoweardarkglassesinordertohidetheirlevelofinterestfrommerchants.
One of Hess’s findings especially captured my attention. He had noticed that the
pupils are sensitive indicators of mental effort—they dilate substantially when people
multiplytwo-digitnumbers,andtheydilatemoreiftheproblemsarehardthaniftheyare
easy. His observations indicated that the response to mental effort is distinct from
emotionalarousal.Hess’sworkdidnothavemuchtodowithhypnosis,butIconcluded
thatthe idea of a visibleindication ofmentalefforthadpromise asa researchtopic. A
graduatestudentinthelab,JacksonBeatty,sharedmyenthusiasmandwegottowork.
BeattyandIdevelopedasetupsimilartoanoptician’sexaminationroom,inwhich
theexperimentalparticipantleanedherheadonachin-and-foreheadrestandstaredata
camera while listening to prerecorded information and answering questions on the
recorded beats of a metronome. The beats triggered an infrared flash every second,
causingapicturetobetaken.Attheendofeachexperimentalsession,wewouldrushto
havethefilmdeveloped,projecttheimagesofthepupilonascreen,andgotoworkwitha
ruler. The method was a perfect fit for young and impatient researchers: we knew our
resultsalmostimmediately,andtheyalwaystoldaclearstory.
BeattyandIfocusedonpacedtasks,suchasAdd-1,inwhichweknewpreciselywhat
was on the subject’s mind at any time. We recorded strings of digits on beats of the
metronomeandinstructedthesubjecttorepeatortransformthedigitsoneindigitsonby
one,maintainingthesamerhythm.Wesoondiscoveredthatthesizeofthepupilvaried
secondbysecond,reflectingthechangingdemandsofthetask.Theshapeoftheresponse
wasaninverted V.Asyou experienceditifyou triedAdd-1or Add-3, effortbuilds up
witheveryadded digitthatyou hear, reachesan almostintolerablepeak as yourush to
produce a transformed string during and immediately after the pause, and relaxes
graduallyasyou“unload”yourshort-termmemory.Thepupildatacorrespondedprecisely
tosubjectiveexperience:longerstringsreliablycausedlargerdilations,thetransformation
taskcompoundedtheeffort,andthepeakofpupilsizecoincidedwithmaximumeffort.
Add-1withfourdigitscausedalargerdilationthanthetaskofholdingsevendigitsfor
immediaterecall.Add-3,whichismuchmoredifficult,isthemostdemandingthatIever
observed.Inthe first5seconds, the pupildilatesby about 50%of its originalareaand
heartrateincreasesbyabout7beatsperminute.Thisisashardaspeoplecanwork—they
giveupifmoreisaskedofthem.Whenweexposedoursubjectstomoredigitsthanthey
couldremember,theirpupilsstoppeddilatingoractuallyshrank.
Weworkedforsomemonthsinaspaciousbasementsuiteinwhichwehadsetupa
closed-circuit system that projected an image of the subject’s pupil on a screen in the
corridor;wealsocouldhearwhatwashappeninginthelaboratory.Thediameterofthe
projectedpupilwasaboutafoot;watchingitdilateandcontractwhentheparticipantwas
at work was a fascinating sight, quite an attraction for visitors in our lab. We amused
ourselvesandimpressedourguestsbyourabilitytodivinewhentheparticipantgaveup
onatask.Duringamentalmultiplication,thepupilnormallydilatedtoalargesizewithin
afewsecondsandstayedlargeaslongastheindividualkeptworkingontheproblem;it
contractedimmediatelywhenshefoundasolutionorgaveup.Aswewatchedfromthe
corridor, we would sometimes surprise both the owner of the pupil and our guests by
asking,“Whydidyoustopworkingjustnow?”Theanswerfrominsidethelabwasoften,
“Howdidyouknow?”towhichwewouldreply,“Wehaveawindowtoyoursoul.”
Thecasualobservationswemadefromthecorridorweresometimesasinformativeas
theformalexperiments.ImadeasignificantdiscoveryasIwasidlywatchingawoman’s
pupilduringabreakbetweentwotasks.Shehadkeptherpositiononthechinrest,soI
could see the image of her eye while she engaged in routine conversation with the
experimenter.Iwassurprisedtoseethatthepupilremainedsmallanddidnotnoticeably
dilate as she talked and listened. Unlike the tasks that we were studying, the mundane
conversationapparentlydemandedlittleornoeffort—nomorethanretainingtwoorthree
digits.Thiswasaeurekamoment:Irealizedthatthetaskswehadchosenforstudywere
exceptionallyeffortful.Animagecametomind:mentallife—todayIwouldspeakofthe
life of System 2—is normally conducted at the pace of a comfortable walk, sometimes
interruptedbyepisodesofjoggingandonrareoccasionsbyafranticsprint.TheAdd-1
andAdd-3exercisesaresprints,andcasualchattingisastroll.
We found that people, when engaged in a mental sprint, may become effectively
blind.TheauthorsofTheInvisibleGorillahadmadethegorilla“invisible”bykeepingthe
observersintenselybusycountingpasses.Wereportedaratherlessdramaticexampleof
blindnessduringAdd-1.Oursubjectswereexposedtoaseriesofrapidlyflashingletters
whiletheyworked.Theyweretoldtogivethetaskcompletepriority,buttheywerealso
askedtoreport,attheendofthedigittask,whethertheletterKhadappearedatanyrored
atantimeduringthetrial.Themainfindingwasthattheabilitytodetectandreportthe
targetletterchangedinthecourseofthe10secondsoftheexercise.Theobserversalmost
nevermissedaKthatwasshownatthebeginningorneartheendoftheAdd-1taskbut
theymissedthetargetalmosthalfthetimewhenmentaleffortwasatitspeak,althoughwe
hadpicturesoftheirwide-openeyestaringstraightatit.Failuresofdetectionfollowedthe
sameinverted-Vpatternasthedilatingpupil.Thesimilaritywasreassuring:thepupilwas
agoodmeasureofthephysicalarousalthataccompaniesmentaleffort,andwecouldgo
aheadanduseittounderstandhowthemindworks.
Muchliketheelectricitymeteroutsideyourhouseorapartment,thepupilsofferan
indexofthecurrentrateatwhichmentalenergyisused.Theanalogygoesdeep.Youruse
ofelectricitydependsonwhatyouchoosetodo,whethertolightaroomortoastapieceof
bread.Whenyou turnona bulbora toaster, itdrawsthe energyitneeds but nomore.
Similarly,wedecidewhattodo,butwehavelimitedcontrolovertheeffortofdoingit.
Supposeyouareshownfourdigits,say,9462,andtoldthatyourlifedependsonholding
them in memory for 10 seconds. However much you want to live, you cannot exert as
much effort in this task as you would be forced to invest to complete an Add-3
transformationonthesamedigits.
System2andtheelectricalcircuitsinyourhomebothhavelimitedcapacity,butthey
responddifferentlytothreatenedoverload.Abreakertripswhenthedemandforcurrentis
excessive, causing all devices on that circuit to lose power at once. In contrast, the
responsetomentaloverloadisselectiveandprecise:System2protectsthemostimportant
activity, so it receives the attention it needs; “spare capacity” is allocated second by
second to other tasks. In our version of the gorilla experiment, we instructed the
participants to assign priority to the digit task. We know that they followed that
instruction,becausethetimingofthevisualtargethadnoeffectonthemaintask.Ifthe
criticalletterwaspresentedatatimeofhighdemand,thesubjectssimplydidnotseeit.
Whenthetransformationtaskwaslessdemanding,detectionperformancewasbetter.
The sophisticated allocation of attention has been honed by a long evolutionary
history. Orienting and responding quickly to the gravest threats or most promising
opportunities improved the chance of survival, and this capability is certainly not
restrictedto humans. Even inmodernhumans,System1takesoverinemergenciesand
assignstotalprioritytoself-protectiveactions.Imagineyourselfatthewheelofacarthat
unexpectedlyskidsonalargeoilslick.Youwillfindthatyouhaverespondedtothethreat
beforeyoubecamefullyconsciousofit.
BeattyandIworkedtogetherforonlyayear,butourcollaborationhadalargeeffect
on our subsequent careers. He eventually became the leading authority on “cognitive
pupillometry,”and Iwrotea book titledAttention and Effort,whichwasbased in large
partonwhatwelearnedtogetherandonfollow-upresearchIdidatHarvardthefollowing
year.Welearnedagreatdealabouttheworkingmind—whichInowthinkofasSystem2
—frommeasuringpupilsinawidevarietyoftasks.
As you become skilled in a task, its demand for energy diminishes. Studies of the
brain have shown that the pattern of activity associated with an action changes as skill
increases,withfewerbrainregionsinvolved.Talenthassimilareffects.Highlyintelligent
individualsneedlessefforttosolvethesameproblems,asindicatedbybothpupilsizeand
brainactivity.Ageneral“lawofleasteffort”appdt”aliestocognitiveaswellasphysical
exertion.Thelawassertsthatifthereareseveralwaysofachievingthesamegoal,people
will eventually gravitate to the least demanding course of action. In the economy of
action,effortisacost,andtheacquisitionofskillisdrivenbythebalanceofbenefitsand
costs.Lazinessisbuiltdeepintoournature.
Thetasksthatwestudiedvariedconsiderablyintheireffectsonthepupil.Atbaseline,
oursubjectswereawake,aware,andreadytoengageinatask—probablyatahigherlevel
of arousal and cognitive readiness than usual. Holding one or two digits in memory or
learning to associate a word with a digit (3 = door) produced reliable effects on
momentaryarousalabove thatbaseline,but theeffectswere minuscule,only5% ofthe
increase in pupil diameter associated with Add-3. A task that required discriminating
betweenthepitchoftwotonesyieldedsignificantlylargerdilations.Recentresearchhas
shown that inhibiting the tendency to read distracting words (as in figure 2 of the
preceding chapter) also induces moderate effort. Tests of short-term memory for six or
sevendigitsweremoreeffortful.Asyoucanexperience,therequesttoretrieveandsay
aloudyourphonenumberoryourspouse’sbirthdayalso requires a briefbutsignificant
effort,becausetheentirestringmustbeheldinmemoryasaresponseisorganized.Mental
multiplicationoftwo-digitnumbers and theAdd-3task are nearthelimit of whatmost
peoplecando.
What makes some cognitive operations more demanding and effortful than others?
Whatoutcomesmustwepurchaseinthecurrencyofattention?WhatcanSystem2dothat
System1cannot?Wenowhavetentativeanswerstothesequestions.
Effort is required to maintain simultaneously in memory several ideas that require
separate actions, or that need to be combined according to a rule—rehearsing your
shoppinglistasyou enter thesupermarket,choosingbetweenthe fish andthevealat a
restaurant,or combininga surprisingresult froma surveywith theinformation thatthe
samplewassmall,forexample.System2istheonlyonethatcanfollowrules,compare
objectsonseveralattributes,andmakedeliberatechoicesbetweenoptions.Theautomatic
System1doesnothavethesecapabilities.System1detectssimplerelations(“theyareall
alike,”“thesonismuchtallerthanthefather”)andexcelsatintegratinginformationabout
onething,butitdoesnotdealwithmultipledistincttopicsatonce,norisitadeptatusing
purelystatisticalinformation.System1willdetectthatapersondescribedas“ameekand
tidy soul, with a need for order and structure, and a passion for detail” resembles a
caricaturelibrarian,butcombiningthisintuitionwithknowledgeaboutthesmallnumber
oflibrariansisataskthatonlySystem2canperform—ifSystem2knowshowtodoso,
whichistrueoffewpeople.
AcrucialcapabilityofSystem2istheadoptionof“tasksets”:itcanprogrammemory
toobeyaninstructionthatoverrideshabitualresponses.Considerthefollowing:Countall
occurrencesoftheletterfinthispage.Thisisnotataskyouhaveeverperformedbefore
anditwillnotcomenaturallytoyou,butyourSystem2cantakeiton.Itwillbeeffortful
to set yourself up for this exercise, and effortful to carry it out, though you will surely
improvewithpractice.Psychologistsspeakof“executivecontrol”todescribetheadoption
andterminationof task sets, and neuroscientistshaveidentifiedthemainregionsofthe
brain that serve the executive function. One of these regions is involved whenever a
conflict must be resolved. Another is the prefrontal area of the brain, a region that is
substantially more developed in humans tht un humans an in other primates, and is
involvedinoperationsthatweassociatewithintelligence.
Now suppose that at the end of the page you get another instruction: count all the
commas in the next page. This will be harder, because you will have to overcome the
newly acquired tendency to focus attention on the letter f. One of the significant
discoveriesofcognitivepsychologistsinrecentdecadesisthatswitchingfromonetaskto
anotheriseffortful,especiallyundertimepressure.Theneedforrapidswitchingisoneof
thereasonsthatAdd-3andmentalmultiplicationaresodifficult.ToperformtheAdd-3
task,youmustholdseveraldigitsinyourworkingmemoryatthesametime,associating
eachwithaparticularoperation:somedigitsareinthequeuetobetransformed,oneisin
theprocessoftransformation,andothers,alreadytransformed,areretainedforreporting.
Moderntestsofworkingmemoryrequiretheindividualtoswitchrepeatedlybetweentwo
demandingtasks,retainingtheresultsofoneoperationwhileperformingtheother.People
whodowellontheseteststendtodowellontestsofgeneralintelligence.However,the
abilitytocontrolattentionisnotsimplyameasureofintelligence;measuresofefficiency
inthecontrolofattentionpredictperformanceofairtrafficcontrollersandofIsraeliAir
Forcepilotsbeyondtheeffectsofintelligence.
Timepressureisanotherdriverofeffort.AsyoucarriedouttheAdd-3exercise,the
rushwasimposedinpartbythemetronomeandinpartbytheloadonmemory.Likea
juggler with several balls in the air, you cannot afford to slow down; the rate at which
material decays in memory forces the pace, driving you to refresh and rehearse
informationbeforeitislost.Anytaskthatrequiresyoutokeepseveralideasinmindatthe
same time has the same hurried character. Unless you have the good fortune of a
capacious working memory, you may be forced to work uncomfortably hard. The most
effortfulformsofslowthinkingarethosethatrequireyoutothinkfast.
YousurelyobservedasyouperformedAdd-3howunusualitisforyourmindtowork
sohard.Evenifyouthinkforaliving,fewofthementaltasksinwhichyouengageinthe
courseofaworkingdayareasdemandingasAdd-3,orevenasdemandingasstoringsix
digitsforimmediaterecall.Wenormallyavoidmentaloverloadbydividingourtasksinto
multiple easy steps, committing intermediate results to long-term memory or to paper
ratherthantoaneasilyoverloadedworkingmemory.Wecoverlongdistancesbytaking
ourtimeandconductourmentallivesbythelawofleasteffort.
SpeakingofAttentionandEffort
“I won’t try to solve this while driving. This is a pupil-dilating task. It requires
mentaleffort!”
“Thelawofleasteffortisoperatinghere.Hewillthinkaslittleaspossible.”
“She did not forget about the meeting. She was completely focused on something
elsewhenthemeetingwassetandshejustdidn’thearyou.”
“WhatcamequicklytomymindwasanintuitionfromSystem1.I’llhavetostart
overandsearchmymemorydeliberately.”
P
TheLazyController
IspendafewmonthseachyearinBerkeley,andoneofmygreatpleasuresthereisadaily
four-mile walk on a marked path in the hills, with a fine view of San Francisco Bay. I
usuallykeeptrackofmytimeandhavelearnedafairamountabouteffortfromdoingso.I
havefoundaspeed,about17minutesforamile,whichIexperienceasastroll.Icertainly
exertphysicaleffortandburnmorecaloriesatthatspeedthanifIsatinarecliner,butI
experiencenostrain,noconflict,andnoneedtopushmyself.Iamalsoabletothinkand
work while walking at that rate. Indeed, I suspect that the mild physical arousal of the
walkmayspilloverintogreatermentalalertness.
System 2 also has a natural speed. You expend some mental energy in random
thoughtsandinmonitoringwhatgoesonaroundyouevenwhenyourminddoesnothing
in particular, but there is little strain. Unless you are in a situation that makes you
unusuallywaryorself-conscious,monitoringwhathappensintheenvironmentorinside
yourhead demandslittleeffort.Youmake manysmalldecisions asyou driveyour car,
absorb some information as you read the newspaper, and conduct routine exchanges of
pleasantries with a spouse or a colleague, all with little effort and no strain. Just like a
stroll.
Itisnormallyeasyandactuallyquitepleasanttowalkandthinkatthesametime,but
attheextremestheseactivitiesappeartocompeteforthelimitedresourcesofSystem2.
Youcanconfirm this claimby a simpleexperiment.While walkingcomfortablywith a
friend,askhimtocompute23×78inhishead,andtodosoimmediately.Hewillalmost
certainlystopinhistracks.MyexperienceisthatIcanthinkwhilestrollingbutcannot
engage in mental work that imposes a heavy load on short-term memory. If I must
constructanintricateargumentundertimepressure,Iwouldratherbestill,andIwould
prefersitting to standing. Of course,not all slow thinking requiresthat formof intense
concentrationand effortfulcomputation—Idid thebest thinkingof my lifeon leisurely
walkswithAmos.
Accelerating beyond my strolling speed completely changes the experience of
walking,becausethetransitiontoafasterwalkbringsaboutasharpdeteriorationinmy
abilitytothinkcoherently.AsIspeedup,myattentionisdrawnwithincreasingfrequency
to the experience of walking and to the deliberate maintenance of the faster pace. My
abilitytobringatrainofthoughttoaconclusionisimpairedaccordingly.Atthehighest
speedIcansustainonthehills,about14minutesforamile,Idonoteventrytothinkof
anythingelse.Inadditiontothephysicaleffortofmovingmybodyrapidlyalongthepath,
amentaleffortofself-controlisneededtoresisttheurgetoslowdown.Self-controland
deliberatethoughtapparentlydrawonthesamelimitedbudgetofeffort.
Formostofus,mostofthetime,themaintenanceofacoherenttrainofthoughtand
theoccasionalengagementineffortfulthinkingalsorequireself-control.AlthoughIhave
notconductedasystematicsurvey,Isuspectthatfrequentswitchingoftasksandspeeded-
up mental work are not intrinsically pleasurable, and that people avoid them when
possible.Thisishowthelawofleasteffortcomestobealaw.Evenintheabsenceoftime
pressure,maintainingacoherenttrainofthoughtrequiresdiscipline.Anobserverofthe
numberoftimesIlookate-mailorinvestigatetherefrigeratorduringanhourofwriting
could wahene dd reasonably infer an urge to escape and conclude that keeping at it
requiresmoreself-controlthanIcanreadilymuster.
Fortunately, cognitive work is not always aversive, and people sometimes expend
considerable effort for long periods of time without having to exert willpower. The
psychologistMihalyCsikszentmihalyi(pronouncedsix-cent-mihaly)hasdonemorethan
anyone else to study this state of effortless attending, and the name he proposed for it,
flow,hasbecomepartofthelanguage.Peoplewhoexperienceflowdescribeitas“astate
of effortless concentration so deep that they lose their sense of time, of themselves, of
their problems,” and their descriptions of the joy of that state are so compelling that
Csikszentmihalyihascalleditan“optimalexperience.”Manyactivitiescaninduceasense
of flow, from painting to racing motorcycles—and for some fortunate authors I know,
evenwritingabookisoftenanoptimalexperience.Flowneatlyseparatesthetwoformsof
effort: concentration on the task and the deliberate control of attention. Riding a
motorcycleat150 miles anhourand playing acompetitivegameof chessarecertainly
very effortful. In a state of flow, however, maintaining focused attention on these
absorbing activities requires no exertion of self-control, thereby freeing resources to be
directedtothetaskathand.
TheBusyandDepletedSystem2
It is now a well-established proposition that both self-control and cognitive effort are
forms of mental work. Several psychological studies have shown that people who are
simultaneouslychallengedbyademandingcognitivetaskandbyatemptationaremore
likelytoyieldtothetemptation.Imaginethatyouareaskedtoretainalistofsevendigits
foraminuteortwo.Youaretoldthatrememberingthedigitsisyourtoppriority.While
yourattentionisfocusedonthedigits,youareofferedachoicebetweentwodesserts:a
sinfulchocolatecakeandavirtuousfruitsalad.Theevidencesuggeststhatyouwouldbe
morelikelytoselectthetemptingchocolatecakewhenyourmindisloadedwithdigits.
System1hasmoreinfluenceonbehaviorwhenSystem2isbusy,andithasasweettooth.
People who are cognitively busy are also more likely to make selfish choices, use
sexist language, and make superficial judgments in social situations. Memorizing and
repeatingdigitsloosenstheholdofSystem2onbehavior,butofcoursecognitiveloadis
nottheonlycauseofweakenedself-control.Afewdrinkshavethesameeffect,asdoesa
sleeplessnight.Theself-controlofmorningpeopleisimpairedatnight;thereverseistrue
of night people. Too much concern about how well one is doing in a task sometimes
disruptsperformancebyloadingshort-termmemorywithpointlessanxiousthoughts.The
conclusion is straightforward: self-control requires attention and effort. Another way of
saying this is that controlling thoughts and behaviors is one of the tasks that System 2
performs.
A series of surprising experiments by the psychologist Roy Baumeister and his
colleagues has shown conclusively that all variants of voluntary effort—cognitive,
emotional, or physical—draw at least partly on a shared pool of mental energy. Their
experimentsinvolvesuccessiveratherthansimultaneoustasks.
Baumeistersgrouphasrepeatedlyfoundthataneffortofwillorself-controlistiring;
ifyouhavehadtoforceyourselftodosomething,youarelesswillingorlessabletoexert
self-controlwhenthenextchallengecomesaround.Thephenomenonhasbeennamedego
depletion.Inatypicaldemothypicaldenstration,participantswhoareinstructedtostifle
theiremotionalreactiontoanemotionallychargedfilmwilllaterperformpoorlyonatest
ofphysicalstamina—howlongtheycanmaintainastronggriponadynamometerinspite
ofincreasingdiscomfort.Theemotionaleffortinthefirstphaseoftheexperimentreduces
theabilitytowithstandthepainofsustainedmusclecontraction,andego-depletedpeople
thereforesuccumbmorequicklytotheurgetoquit.Inanotherexperiment,peoplearefirst
depleted by a task in which they eat virtuous foods such as radishes and celery while
resistingthetemptationtoindulgeinchocolateandrichcookies.Later,thesepeoplewill
giveupearlierthannormalwhenfacedwithadifficultcognitivetask.
Thelistofsituationsandtasksthatarenowknowntodepleteself-controlislongand
varied.Allinvolveconflictandtheneedtosuppressanaturaltendency.Theyinclude:
avoidingthethoughtofwhitebears
inhibitingtheemotionalresponsetoastirringfilm
makingaseriesofchoicesthatinvolveconflict
tryingtoimpressothers
respondingkindlytoapartnersbadbehavior
interactingwithapersonofadifferentrace(forprejudicedindividuals)
Thelistofindicationsofdepletionisalsohighlydiverse:
deviatingfromone’sdiet
overspendingonimpulsivepurchases
reactingaggressivelytoprovocation
persistinglesstimeinahandgriptask
performingpoorlyincognitivetasksandlogicaldecisionmaking
Theevidenceispersuasive:activitiesthatimposehighdemandsonSystem2requireself-
control,andtheexertionofself-controlisdepletingandunpleasant.Unlikecognitiveload,
egodepletionisatleastinpartalossofmotivation.Afterexertingself-controlinonetask,
youdonotfeellikemakinganeffortinanother,althoughyoucoulddoitifyoureallyhad
to.In several experiments, people wereable to resist the effects of egodepletion when
givenastrongincentivetodoso.Incontrast,increasingeffortisnotanoptionwhenyou
mustkeepsixdigitsinshort-termmemorywhileperformingatask.Egodepletionisnot
thesamementalstateascognitivebusyness.
ThemostsurprisingdiscoverymadebyBaumeistersgroupshows,asheputsit,that
theideaofmentalenergyismorethanameremetaphor.Thenervoussystemconsumes
moreglucosethanmostotherpartsofthebody,andeffortfulmentalactivityappearstobe
especially expensive in the currency of glucose. When you are actively involved in
difficult cognitive reasoning or engaged in a task that requires self-control, your blood
glucoseleveldrops.Theeffectisanalogoustoarunnerwhodrawsdownglucosestoredin
her muscles during a sprint. The bold implication of this idea is that the effects of ego
depletioncouldbeundonebyingestingglucose,andBaumeisterandhiscolleagueshave
confirmedthishypothesisnohypothesiinseveralexperiments.
Volunteers in one of their studies watched a short silent film of a woman being
interviewedandwereaskedtointerpretherbodylanguage.Whiletheywereperforming
thetask,aseriesofwordscrossed the screen inslowsuccession.Theparticipantswere
specificallyinstructedtoignorethewords,andiftheyfoundtheirattentiondrawnaway
theyhadtorefocustheirconcentrationonthewoman’sbehavior.Thisactofself-control
was known to cause ego depletion. All the volunteers drank some lemonade before
participatinginasecondtask.Thelemonadewassweetenedwithglucoseforhalfofthem
and with Splenda for the others. Then all participants were given a task in which they
needed to overcome an intuitive response to get the correct answer. Intuitive errors are
normally much more frequent among ego-depleted people, and the drinkers of Splenda
showedtheexpecteddepletioneffect.On theotherhand,theglucosedrinkers were not
depleted.Restoringthelevelofavailablesugarinthebrainhadpreventedthedeterioration
ofperformance.Itwilltakesometimeandmuchfurtherresearchtoestablishwhetherthe
tasks that cause glucose-depletion also cause the momentary arousal that is reflected in
increasesofpupilsizeandheartrate.
Adisturbingdemonstrationofdepletioneffectsinjudgmentwasrecentlyreportedin
theProceedings of the National Academy of Sciences.The unwittingparticipantsinthe
studywereeightparolejudgesinIsrael.Theyspendentiredaysreviewingapplicationsfor
parole.Thecasesarepresentedinrandomorder,andthejudgesspendlittletimeoneach
one, an average of 6 minutes. (The default decision is denial of parole; only 35% of
requestsareapproved.Theexacttimeofeachdecisionisrecorded,andthetimesofthe
judges’ three food breaks—morning break, lunch, and afternoon break—during the day
arerecordedaswell.)Theauthorsofthestudyplottedtheproportionofapprovedrequests
againstthe time sincethe lastfood break.The proportion spikesafter eachmeal, when
about 65% of requests are granted. During the two hours or so until the judges’ next
feeding,theapprovalratedropssteadily,toaboutzerojustbeforethemeal.Asyoumight
expect, this is an unwelcome result and the authors carefully checked many alternative
explanations.Thebestpossibleaccountofthedataprovidesbadnews:tiredandhungry
judgestendtofallbackontheeasierdefaultpositionofdenyingrequestsforparole.Both
fatigueandhungerprobablyplayarole.
TheLazySystem2
One of the main functions of System 2 is to monitor and control thoughts and actions
“suggested” by System 1, allowing some to be expressed directly in behavior and
suppressingormodifyingothers.
For an example, here is a simple puzzle. Do not try to solve it but listen to your
intuition:
Abatandballcost$1.10.
Thebatcostsonedollarmorethantheball.
Howmuchdoestheballcost?
Anumbercametoyourmind.Thenumber,ofcourse,is10:10¢.Thedistinctivemarkof
thiseasypuzzleisthatitevokesananswerthatisintuitive,appealing,andwrong.Dothe
math,andyouwillsee.Iftheballcosts10¢,thenthetotalcostwillbe$1.20(10¢forthe
balland$1.10forthebat),not$1.10.Thecorrectansweris5¢.It%”>5¢.issafetoassume
thattheintuitiveanswer also cametothemindofthosewhoendedupwiththecorrect
number—theysomehowmanagedtoresisttheintuition.
Shane Frederick and I worked together on a theory of judgment based on two
systems,andheusedthebat-and-ballpuzzletostudyacentralquestion:Howcloselydoes
System 2 monitor the suggestions of System 1? His reasoning was that we know a
significantfactaboutanyonewhosaysthattheballcosts10¢:thatpersondidnotactively
checkwhethertheanswerwascorrect,andherSystem2endorsedanintuitiveanswerthat
itcouldhaverejectedwithasmallinvestmentofeffort.Furthermore,wealsoknowthat
thepeoplewhogivetheintuitiveanswerhavemissedanobvioussocialcue;theyshould
have wondered why anyone would include in a questionnaire a puzzle with such an
obviousanswer.Afailuretocheckisremarkablebecausethecostofcheckingissolow:a
few seconds of mental work (the problem is moderately difficult), with slightly tensed
muscles and dilated pupils, could avoid an embarrassing mistake. People who say 10¢
appear to be ardent followers of the law of least effort. People who avoid that answer
appeartohavemoreactiveminds.
Manythousandsofuniversitystudentshaveansweredthebat-and-ballpuzzle,andthe
resultsareshocking.Morethan50%ofstudentsatHarvard,MIT,andPrincetontongave
theintuitive—incorrect—answer. Atless selectiveuniversities, therate ofdemonstrable
failure to check was in excess of 80%. The bat-and-ball problem is our first encounter
with an observation that will be a recurrent theme of this book: many people are
overconfident, prone to place too much faith in their intuitions. They apparently find
cognitiveeffortatleastmildlyunpleasantandavoiditasmuchaspossible.
Now I will show you a logical argument—two premises and a conclusion. Try to
determine,asquicklyasyoucan,iftheargumentislogicallyvalid.Doestheconclusion
followfromthepremises?
Allrosesareflowers.
Someflowersfadequickly.
Thereforesomerosesfadequickly.
Alargemajorityofcollegestudentsendorsethissyllogismasvalid.Infacttheargumentis
flawed,becauseitispossiblethattherearenorosesamongtheflowersthatfadequickly.
Just as in the bat-and-ball problem, a plausible answer comes to mind immediately.
Overriding it requires hard work—the insistent idea that “it’s true, it’s true!” makes it
difficulttocheckthelogic,andmostpeopledonottakethetroubletothinkthroughthe
problem.
This experiment has discouraging implications for reasoning in everyday life. It
suggeststhatwhenpeoplebelieveaconclusionistrue,theyarealsoverylikelytobelieve
argumentsthatappeartosupportit,evenwhentheseargumentsareunsound.IfSystem1
isinvolved,theconclusioncomesfirstandtheargumentsfollow.
Next,considerthefollowingquestionandansweritquicklybeforereadingon:
HowmanymurdersoccurinthestateofMichiganinoneyear?
Thequestion,whichwasalsodevisedbyShaneFrederick,isagainachallengetoSystem
2.The“trick”iswhethertherespondentwillrememberthatDetroit,ahigh-crimecthigh-
crimeity, is in Michigan. College students in the United States know this fact and will
correctlyidentifyDetroitasthelargestcityinMichigan.Butknowledgeofafactisnot
all-or-none.Factsthatweknowdonotalwayscometomindwhenweneedthem.People
whorememberthatDetroitisinMichigangivehigherestimatesofthemurderrateinthe
statethanpeoplewhodonot,butamajorityofFrederick’srespondentsdidnotthinkofthe
citywhenquestionedaboutthestate.Indeed,theaverageguessbypeoplewhowereasked
aboutMichiganislowerthanthe guesses ofasimilargroup whowereaskedabout the
murderrateinDetroit.
BlameforafailuretothinkofDetroitcanbelaidonbothSystem1andSystem2.
Whether the city comes to mind when the state is mentioned depends in part on the
automaticfunctionofmemory.Peopledifferinthisrespect.Therepresentationofthestate
ofMichiganisverydetailedinsomepeople’sminds:residentsofthestatearemorelikely
to retrieve many facts about it than people who live elsewhere; geography buffs will
retrievemorethanotherswhospecializeinbaseballstatistics;moreintelligentindividuals
aremorelikelythanotherstohaverichrepresentationsofmostthings.Intelligenceisnot
onlytheabilitytoreason;itisalsotheabilitytofindrelevantmaterialinmemoryandto
deploy attention when needed. Memory function is an attribute of System 1. However,
everyonehastheoptionofslowingdowntoconductanactivesearchofmemoryforall
possiblyrelevantfacts—justastheycouldslowdowntochecktheintuitiveanswerinthe
bat-and-ballproblem.Theextentofdeliberatecheckingandsearchisacharacteristicof
System2,whichvariesamongindividuals.
Thebat-and-ballproblem,theflowerssyllogism,andtheMichigan/Detroitproblem
havesomethingincommon.Failingtheseminitestsappearstobe,atleasttosomeextent,
amatterofinsufficientmotivation,nottryinghardenough.Anyonewhocanbeadmitted
to a good university is certainly able to reason through the first two questions and to
reflectaboutMichiganlongenoughtorememberthemajorcityinthatstateanditscrime
problem. These students can solve much more difficult problems when they are not
temptedtoacceptasuperficiallyplausibleanswerthatcomesreadilytomind.Theease
withwhichtheyaresatisfiedenoughtostopthinkingisrathertroubling.“Lazy”isaharsh
judgmentabouttheself-monitoringoftheseyoungpeopleandtheirSystem2,butitdoes
not seem to be unfair. Those who avoid the sin of intellectual sloth could be called
“engaged.”Theyaremorealert,moreintellectuallyactive,lesswillingtobesatisfiedwith
superficially attractive answers, more skeptical about their intuitions. The psychologist
KeithStanovichwouldcallthemmorerational.
Intelligence,Control,Rationality
Researchers have applied diverse methods to examine the connection between thinking
andself-control.Somehaveaddresseditbyaskingthecorrelationquestion:Ifpeoplewere
rankedbytheirself-controlandbytheircognitiveaptitude,wouldindividualshavesimilar
positionsinthetworankings?
Inoneofthemostfamousexperimentsinthehistoryofpsychology,WalterMischel
and his students exposed four-year-old children to a cruel dilemma. They were given a
choicebetweenasmallreward(oneOreo),whichtheycouldhaveatanytime,oralarger
reward (two cookies) for which they had to wait 15 minutes under difficult conditions.
Theyweretoremainaloneinaroom,facingadeskwithtwoobjects:asinglecookieanda
bellthat thechild could ring at anytime to call in the experimenter andreceiven oand
recei the one cookie. As the experiment was described: “There were no toys, books,
pictures,orotherpotentiallydistractingitemsintheroom.Theexperimenterlefttheroom
and did not return until 15 min had passed or the child had rung the bell, eaten the
rewards,stoodup,orshownanysignsofdistress.”
Thechildrenwerewatchedthroughaone-waymirror,andthefilmthatshowstheir
behaviorduringthewaitingtimealwayshastheaudienceroaringinlaughter.Abouthalf
thechildrenmanagedthefeatofwaitingfor15minutes,mainlybykeepingtheirattention
awayfromthetemptingreward.Tenorfifteenyearslater,alargegaphadopenedbetween
those who had resisted temptation and those who had not. The resisters had higher
measuresof executivecontrolin cognitivetasks, andespeciallythe abilityto reallocate
their attention effectively. As young adults, they were less likely to take drugs. A
significantdifferenceinintellectualaptitudeemerged:thechildrenwhohadshownmore
self-controlasfour-year-oldshadsubstantiallyhigherscoresontestsofintelligence.
AteamofresearchersattheUniversityofOregonexploredthelinkbetweencognitive
control and intelligence in several ways, including an attempt to raise intelligence by
improvingthecontrolofattention.Duringfive40-minutesessions,theyexposedchildren
agedfourtosixtovariouscomputergamesespeciallydesignedtodemandattentionand
control. In one of the exercises, the children used a joystick to track a cartoon cat and
moveittoagrassyareawhileavoidingamuddyarea.Thegrassyareasgraduallyshrank
andthemuddyareaexpanded,requiringprogressivelymoreprecisecontrol.Thetesters
found that training attention not only improved executive control; scores on nonverbal
tests of intelligence also improved and the improvement was maintained for several
months.Otherresearchbythesamegroupidentifiedspecificgenesthatareinvolvedinthe
control of attention, showed that parenting techniques also affected this ability, and
demonstratedacloseconnectionbetweenthechildren’sabilitytocontroltheir attention
andtheirabilitytocontroltheiremotions.
ShaneFrederickconstructedaCognitiveReflectionTest,whichconsistsofthebat-
and-ball problem and two other questions, chosen because they also invite an intuitive
answerthatisbothcompellingandwrong(thequestionsareshownhere).Hewentonto
study the characteristics of students who score very low on this test—the supervisory
functionofSystem2isweakinthesepeople—andfoundthattheyarepronetoanswer
questionswiththefirstideathatcomestomindandunwillingtoinvesttheeffortneeded
tochecktheirintuitions.Individualswhouncriticallyfollowtheirintuitionsaboutpuzzles
arealsopronetoacceptothersuggestionsfromSystem1.Inparticular,theyareimpulsive,
impatient,andkeentoreceiveimmediategratification.Forexample,63%oftheintuitive
respondentssaytheywouldprefertoget$3,400thismonthratherthan$3,800nextmonth.
Only 37% of those who solve all three puzzles correctly have the same shortsighted
preferenceforreceivingasmalleramountimmediately.Whenaskedhowmuchtheywill
pay to get overnight delivery of a book they have ordered, the low scorers on the
CognitiveReflectionTestarewillingtopaytwiceasmuchasthehighscorers.Frederick’s
findings suggest that the characters of our psychodrama have different “personalities.”
System1isimpulsiveandintuitive;System2iscapableofreasoning,anditiscautious,
but at least for some people it is also lazy. We recognize related differences among
individuals:somepeoplearemoreliketheirSystem2;othersareclosertotheirSystem1.
Thissimpletesthasemergedasoneofthebetterpredictorsoflaztestorsoflythinking.
KeithStanovichandhislongtimecollaboratorRichardWestoriginallyintroducedthe
termsSystem1andSystem2(theynowprefertospeakofType1andType2processes).
Stanovichandhiscolleagueshavespentdecadesstudyingdifferencesamongindividuals
inthekindsofproblemswithwhichthisbookisconcerned.Theyhaveaskedonebasic
questioninmanydifferentways:Whatmakessomepeoplemoresusceptiblethanothersto
biasesofjudgment?StanovichpublishedhisconclusionsinabooktitledRationalityand
the Reflective Mind, which offers a bold and distinctive approach to the topic of this
chapter. He draws a sharp distinction between two parts of System 2—indeed, the
distinctionissosharpthathecallsthemseparate“minds.”Oneoftheseminds(hecallsit
algorithmic)dealswithslowthinkinganddemandingcomputation.Somepeoplearebetter
than others in these tasks of brain power—they are the individuals who excel in
intelligencetestsandareabletoswitchfromonetasktoanotherquicklyandefficiently.
However,Stanovicharguesthathighintelligencedoesnotmakepeopleimmunetobiases.
Anotherabilityisinvolved,whichhelabelsrationality.Stanovich’sconceptofarational
person is similar to what I earlier labeled “engaged.” The core of his argument is that
rationality should be distinguished from intelligence. In his view, superficial or “lazy”
thinkingisaflawinthereflectivemind,afailureofrationality.Thisisanattractiveand
thought-provokingidea.Insupportofit,Stanovichandhiscolleagueshavefoundthatthe
bat-and-ballquestionandotherslikeitaresomewhatbetterindicatorsofoursusceptibility
tocognitiveerrorsthanareconventionalmeasuresofintelligence,suchasIQtests.Time
will tell whether the distinction between intelligence and rationality can lead to new
discoveries.
SpeakingofControl
“Shedidnothavetostruggletostayontaskforhours.Shewasinastateofflow.”
“His ego was depleted after a long day of meetings. So he just turned to standard
operatingproceduresinsteadofthinkingthroughtheproblem.”
“Hedidn’tbothertocheckwhetherwhathesaidmadesense.Doesheusuallyhavea
lazySystem2orwasheunusuallytired?”
“Unfortunately, she tends to say the first thing that comes into her mind. She
probablyalsohastroubledelayinggratification.WeakSystem2.”
P
TheAssociativeMachine
TobeginyourexplorationofthesurprisingworkingsofSystem1,lookatthefollowing
words:
BananasVomit
Alothappenedtoyouduringthelastsecondortwo.Youexperiencedsomeunpleasant
imagesandmemories.Yourfacetwistedslightlyinanexpressionofdisgust,andyoumay
havepushedthisbookimperceptiblyfartheraway.Yourheartrateincreased,thehairon
yourarmsrosealittle,andyoursweatglandswereactivated.Inshort,yourespondedto
thedisgustingwordwithanattenuatedversionofhowyouwouldreacttotheactualevent.
Allofthiswascompletelyautomatic,beyondyourcontrol.
There was no particular reason to do so, but your mind automatically assumed a
temporal sequence and a causal connection between the words bananas and vomit,
forming a sketchy scenario in which bananas caused the sickness. As a result, you are
experiencingatemporaryaversiontobananas(don’tworry,itwillpass).Thestateofyour
memory has changed in other ways: you are now unusually ready to recognize and
respondtoobjectsandconcepts associated with“vomit,”suchassick,stink,ornausea,
and words associated with “bananas,” such as yellow and fruit, and perhaps apple and
berries.
Vomiting normally occurs in specific contexts, such as hangovers and indigestion.
Youwouldalsobeunusuallyreadytorecognizewordsassociatedwithothercausesofthe
same unfortunate outcome. Furthermore, your System 1 noticed the fact that the
juxtapositionofthetwowordsisuncommon;youprobablyneverencountereditbefore.
Youexperiencedmildsurprise.
This complex constellation of responses occurred quickly, automatically, and
effortlessly.Youdidnotwillitandyoucouldnotstopit.ItwasanoperationofSystem1.
The events that took place as a result of your seeing the words happened by a process
calledassociativeactivation:ideasthathavebeenevokedtriggermanyotherideas,ina
spreadingcascadeofactivityinyourbrain.Theessentialfeatureof this complexsetof
mental events is its coherence. Each element is connected, and each supports and
strengthenstheothers.Thewordevokesmemories,whichevokeemotions,whichinturn
evoke facial expressions and other reactions, such as a general tensing up and an
avoidancetendency.Thefacialexpressionandtheavoidancemotionintensifythefeelings
to which they are linked, and the feelings in turn reinforce compatible ideas. All this
happensquicklyandallatonce,yieldingaself-reinforcingpatternofcognitive,emotional,
andphysicalresponsesthatisbothdiverseandintegrated—ithasbeencalledassociatively
coherent.
Inasecondorsoyouaccomplished,automaticallyandunconsciously,aremarkable
feat.Startingfromacompletelyunexpectedevent,yourSystem1madeasmuchsenseas
possibleofthesituation—twosimplewords,oddlyjuxtaposed—bylinkingthewordsina
causalstory;itevaluatedthepossiblethreat(mildtomoderate)andcreatedacontextfor
futuredevelopmentsbypreparingyouforeventsthathadjustbecomemorelikely;italso
createdacontextforthecurrenteventbyevaluatinghowsurprisingitwas.Youendedup
asinformedaboutthepastandaspreparedforthefutureasyoucouldbe.
AnoddfeatureofwhathappenedisthatyourSystem1treatedthemereconjunction
oftwowordsasrepresentationsofreality.Yourbodyreactedinanattenuatedreplicaofa
reactiontotherealthing,andtheemotionalresponseandphysicalrecoilwerepartofthe
interpretation of the event. As cognitive scientists have emphasized in recent years,
cognitionisembodied;youthinkwithyourbody,notonlywithyourbrain.
Themechanismthatcausesthesementaleventshasbeenknownforalongtime:itis
theass12;velyociationofideas.Weallunderstandfromexperiencethatideasfolloweach
other in our conscious mind in a fairly orderly way. The British philosophers of the
seventeenthandeighteenthcenturiessearchedfortherulesthatexplainsuchsequences.In
An Enquiry Concerning Human Understanding, published in 1748, the Scottish
philosopher David Hume reduced the principles of association to three: resemblance,
contiguity in time and place, and causality. Our concept of association has changed
radicallysinceHume’sdays,buthisthreeprinciplesstillprovideagoodstart.
Iwilladoptanexpansiveviewofwhatanideais.Itcanbeconcreteorabstract,andit
canbeexpressedinmanyways:asaverb,asanoun,asanadjective,orasaclenchedfist.
Psychologists think of ideas as nodes in a vast network, called associative memory, in
whicheachideais linked tomanyothers.Thereare differenttypesoflinks:causes are
linkedtotheireffects(virus cold);thingstotheirproperties(lime green);thingsto
thecategoriestowhichtheybelong(banana fruit).Onewaywehaveadvancedbeyond
Humeisthatwenolongerthinkofthemindasgoingthroughasequenceofconscious
ideas,oneatatime.Inthecurrentviewofhowassociativememoryworks,agreatdeal
happensatonce.Anideathathasbeenactivateddoesnotmerelyevokeoneotheridea.It
activates many ideas, which in turn activate others. Furthermore, only a few of the
activatedideaswillregisterinconsciousness;mostoftheworkofassociativethinkingis
silent,hidden from our conscious selves.The notionthat we havelimited accessto the
workingsofourmindsisdifficulttoacceptbecause,naturally,itisalientoourexperience,
butitistrue:youknowfarlessaboutyourselfthanyoufeelyoudo.
TheMarvelsofPriming
As is common in science, the first big breakthrough in our understanding of the
mechanismofassociationwasanimprovementinamethodofmeasurement.Untilafew
decadesago,theonlywaytostudyassociationswastoaskmanypeoplequestionssuchas,
“What is the first word that comes to your mind when you hear the word DAY?” The
researcherstalliedthefrequencyofresponses,suchas“night,”“sunny,”or“long.”Inthe
1980s, psychologists discovered that exposure to a word causes immediate and
measurable changes in the ease with which many related words can be evoked. If you
haverecentlyseenorheardthewordEAT,youaretemporarilymorelikelytocompletethe
wordfragmentSO_PasSOUPthanasSOAP.Theoppositewouldhappen,ofcourse,if
youhadjustseenWASH.WecallthisaprimingeffectandsaythattheideaofEATprimes
theideaofSOUP,andthatWASHprimesSOAP.
Priming effects take many forms. If the idea of EAT is currently on your mind
(whetherornotyouareconsciousofit),youwillbequickerthanusualtorecognizethe
wordSOUPwhenitisspokeninawhisperorpresentedinablurryfont.Andofcourse
youareprimednotonlyfortheideaofsoupbutalsoforamultitudeoffood-relatedideas,
including fork, hungry, fat, diet, and cookie. If for your most recent meal you sat at a
wobblyrestauranttable,youwillbeprimedforwobblyaswell.Furthermore,theprimed
ideas have some ability to prime other ideas, although more weakly. Like ripples on a
pond,activationspreadsthroughasmallpartofthevastnetworkofassociatedideas.The
mapping of these ripples is now one of the most exciting pursuits in psychological
research.
Another major advance in our understanding of memory was the discovery that
priming is not restricted to concepts and words. You cannot know this from conscious
experience, of course, but you must accept the alien idea that your actions and your
emotionscanbeprimedbyeventsofwhichyouarenotevenaware.Inanexperimentthat
became an instant classic, the psychologist John Bargh and his collaborators asked
studentsatNewYorkUniversity—mostagedeighteentotwenty-two—toassemblefour-
wordsentencesfromasetoffivewords(forexample,“findsheityellowinstantly”).For
onegroupofstudents,halfthescrambledsentencescontainedwordsassociatedwiththe
elderly,suchasFlorida,forgetful,bald,gray,orwrinkle.Whentheyhadcompletedthat
task,theyoungparticipantsweresentouttodoanotherexperimentinanofficedownthe
hall.Thatshortwalkwaswhattheexperimentwasabout.Theresearchersunobtrusively
measuredthetimeittookpeopletogetfromoneendofthecorridortotheother.AsBargh
hadpredicted,theyoungpeoplewhohadfashionedasentencefromwordswithanelderly
themewalkeddownthehallwaysignificantlymoreslowlythantheothers.
The “Florida effect” involves two stages of priming. First, the set of words primes
thoughtsofoldage,thoughthewordoldisnevermentioned;second,thesethoughtsprime
abehavior,walkingslowly,whichisassociatedwitholdage.Allthishappenswithoutany
awareness.Whentheywerequestionedafterward,noneofthestudentsreportednoticing
thatthewordshadhadacommontheme,andtheyallinsistedthatnothingtheydidafter
thefirstexperimentcouldhavebeeninfluencedbythewordstheyhadencountered.The
ideaofoldagehadnotcometotheirconsciousawareness,buttheiractionshadchanged
nevertheless.Thisremarkableprimingphenomenon—theinfluencingofanactionbythe
idea—isknownastheideomotoreffect.Althoughyousurelywerenotawareofit,reading
thisparagraphprimedyouaswell.Ifyouhadneededtostanduptogetaglassofwater,
you would have been slightly slower than usual to rise from your chair—unless you
happentodisliketheelderly,inwhichcaseresearchsuggeststhatyoumighthavebeen
slightlyfasterthanusual!
Theideomotorlinkalsoworksinreverse.AstudyconductedinaGermanuniversity
wasthemirrorimageoftheearlyexperimentthatBarghandhiscolleagueshadcarriedout
inNewYork.Studentswereaskedtowalkaroundaroomfor5minutesatarateof30
stepsperminute,whichwasaboutone-thirdtheirnormalpace.Afterthisbriefexperience,
the participants were much quicker to recognize words related to old age, such as
forgetful,old,andlonely.Reciprocalprimingeffectstendtoproduceacoherentreaction:
ifyouwereprimedtothinkofoldage,youwouldtendtoactold,andactingoldwould
reinforcethethoughtofoldage.
Reciprocallinksarecommonintheassociativenetwork.Forexample,beingamused
tendstomakeyousmile,andsmilingtendstomakeyoufeelamused.Goaheadandtakea
pencil,andholditbetweenyourteethforafewsecondswiththeeraserpointingtoyour
rightandthepointtoyourleft.Nowholdthepencilsothepointisaimedstraightinfront
ofyou,bypursingyourlipsaroundtheeraserend.Youwereprobablyunawarethatoneof
theseactionsforcedyourfaceintoafrownandtheotherintoasmile.Collegestudents
wereaskedtoratethehumorofcartoonsfromGaryLarson’sTheFarSidewhileholding
apencilintheirmouth.Thosewhowere“smiling”(withoutanyawarenessofdoingso)
foundthecartoonsrri221;(withfunnierthandidthosewhowere“frowning.”Inanother
experiment, people whose face was shaped into a frown (by squeezing their eyebrows
together) reported an enhanced emotional response to upsetting pictures—starving
children,peoplearguing,maimedaccidentvictims.
Simple,commongesturescanalsounconsciouslyinfluenceourthoughtsandfeelings.
Inonedemonstration,peoplewereaskedtolistentomessagesthroughnewheadphones.
They were told that the purpose of the experiment was to test the quality of the audio
equipmentandwereinstructedtomovetheirheadsrepeatedlytocheckforanydistortions
ofsound.Halftheparticipantsweretoldtonodtheirheadupanddownwhileotherswere
toldtoshakeitsidetoside.Themessagestheyheardwereradioeditorials.Thosewho
nodded(ayesgesture)tendedtoacceptthemessagetheyheard,butthosewhoshooktheir
headtendedtorejectit.Again,therewasnoawareness,justahabitualconnectionbetween
anattitudeofrejectionoracceptance and itscommonphysicalexpression.Youcansee
whythecommonadmonitionto“actcalmandkindregardlessofhowyoufeel”isvery
goodadvice:youarelikelytoberewardedbyactuallyfeelingcalmandkind.
PrimesThatGuideUs
Studies of priming effects have yielded discoveries that threaten our self-image as
consciousandautonomousauthorsofourjudgmentsandourchoices.Forinstance,most
ofus thinkof voting as a deliberateact thatreflectsour valuesand ourassessments of
policies and is not influenced by irrelevancies. Our vote should not be affected by the
locationofthepollingstation,forexample,butitis.Astudyofvotingpatternsinprecincts
of Arizona in 2000 showed that the support for propositions to increase the funding of
schoolswassignificantlygreaterwhenthepollingstationwasinaschoolthanwhenitwas
in a nearby location. A separate experiment showed that exposing people to images of
classrooms and school lockers also increased the tendency of participants to support a
schoolinitiative.Theeffectoftheimageswaslargerthanthedifferencebetweenparents
and other voters! The study of priming has come some way from the initial
demonstrationsthatremindingpeopleofoldagemakesthemwalkmoreslowly.Wenow
knowthattheeffectsofprimingcanreachintoeverycornerofourlives.
Remindersofmoneyproducesometroublingeffects.Participantsinoneexperiment
wereshownalistoffivewordsfromwhichtheywererequiredtoconstructafour-word
phrase that had a money theme (“high a salary desk paying” became “a high-paying
salary”). Other primes were much more subtle, including the presence of an irrelevant
money-relatedobjectinthebackground,suchasastackofMonopolymoneyonatable,or
acomputerwithascreensaverofdollarbillsfloatinginwater.
Money-primed people become more independent than they would be without the
associativetrigger.Theyperseveredalmosttwiceaslongintryingtosolveaverydifficult
problembeforetheyaskedtheexperimenterforhelp,acrispdemonstrationofincreased
self-reliance.Money-primedpeoplearealsomoreselfish:theyweremuchlesswillingto
spendtimehelpinganotherstudentwhopretendedtobeconfusedaboutanexperimental
task. When an experimenter clumsily dropped a bunch of pencils on the floor, the
participantswithmoney(unconsciously)ontheirmindpickedupfewerpencils.Inanother
experiment in the series, participants were told that they would shortly have a get-
acquaintedconversationwithanotherpersonandwereaskedtosetuptwochairswhilethe
experimenterlefttoretrievethatperson.Participantsprimedbymoneychoseintheexto
stay much farther apart than their nonprimed peers (118 vs. 80 centimeters). Money-
primedundergraduatesalsoshowedagreaterpreferenceforbeingalone.
Thegeneralthemeofthesefindingsisthattheideaofmoneyprimesindividualism:a
reluctance to be involved with others, to depend on others, or to accept demands from
others.Thepsychologistwhohasdonethisremarkableresearch,KathleenVohs,hasbeen
laudablyrestrainedindiscussingtheimplicationsofherfindings,leavingthetasktoher
readers.Herexperimentsareprofound—herfindingssuggestthatlivinginaculturethat
surroundsuswithremindersofmoneymayshapeourbehaviorandourattitudesinways
thatwe do not know aboutand of which we maynot be proud. Some culturesprovide
frequentremindersofrespect,othersconstantlyremindtheirmembersofGod,andsome
societiesprimeobediencebylargeimagesoftheDearLeader.Cantherebeanydoubtthat
theubiquitousportraitsofthenationalleaderindictatorialsocietiesnotonlyconveythe
feelingthat“BigBrotherIsWatching”butalsoleadtoanactualreductioninspontaneous
thoughtandindependentaction?
The evidence of priming studies suggests that reminding people of their mortality
increasestheappealofauthoritarianideas,whichmaybecomereassuringinthecontextof
theterrorofdeath.OtherexperimentshaveconfirmedFreudianinsightsabouttheroleof
symbolsandmetaphorsinunconsciousassociations.Forexample,considertheambiguous
wordfragmentsW__HandS__P.Peoplewhowererecentlyaskedtothinkofanaction
of which they are ashamed are more likely to complete those fragments as WASH and
SOAP and less likely to see WISH and SOUP. Furthermore, merely thinking about
stabbingacoworkerinthebackleavespeoplemoreinclinedtobuysoap,disinfectant,or
detergentthanbatteries,juice,orcandybars.Feelingthatone’ssoulisstainedappearsto
triggeradesiretocleanseone’sbody,animpulsethathasbeendubbedthe“LadyMacbeth
effect.”
Thecleansingishighlyspecifictothebodypartsinvolvedinasin.Participantsinan
experimentwereinducedto“lie”toanimaginaryperson,eitheronthephoneorine-mail.
Ina subsequenttest ofthe desirabilityof variousproducts, peoplewho hadlied onthe
phonepreferredmouthwashoversoap,andthosewhohadliedine-mailpreferredsoapto
mouthwash.
WhenIdescribeprimingstudiestoaudiences,thereactionisoftendisbelief.Thisis
notasurprise:System2believesthatitisinchargeandthatitknowsthereasonsforits
choices.Questionsareprobablycroppingupinyourmindaswell:Howisitpossiblefor
suchtrivialmanipulationsofthecontexttohavesuchlargeeffects?Dotheseexperiments
demonstrate that we are completely at the mercy of whatever primes the environment
provides at any moment? Of course not. The effects of the primes are robust but not
necessarily large. Among a hundred voters, only a few whose initial preferences were
uncertainwillvotedifferentlyaboutaschoolissueiftheirprecinctislocatedinaschool
ratherthaninachurch—butafewpercentcouldtipanelection.
Theideayoushouldfocuson,however,isthatdisbeliefisnotanoption.Theresults
arenotmadeup,noraretheystatisticalflukes.Youhavenochoicebuttoacceptthatthe
majorconclusionsofthesestudiesaretrue.Moreimportant,youmustacceptthattheyare
trueaboutyou.Ifyouhadbeenexposedtoascreensaveroffloatingdollarbills,youtoo
wouldlikelyhavepickedupfewerpencilstohelpaclumsystranger.Youdonotbelieve
that these results apply to you because they correspond to nothing in your subjective
experience.Butyoursubjectiveexpefteelief.Trienceconsistslargelyofthestorythatyour
System2tellsitselfaboutwhatisgoingon.PrimingphenomenaariseinSystem1,and
youhavenoconsciousaccesstothem.
Iconcludewithaperfectdemonstrationofaprimingeffect,whichwasconductedin
anofficekitchenataBritishuniversity.Formanyyearsmembersofthatofficehadpaid
fortheteaorcoffeetowhichtheyhelpedthemselvesduringthedaybydroppingmoney
intoan“honestybox.”Alistofsuggestedpriceswasposted.Onedayabannerposterwas
displayed just above the price list, with no warning or explanation. For aperiod of ten
weeksanewimagewaspresentedeachweek,eitherflowersoreyesthatappearedtobe
looking directly at the observer. No one commented on the new decorations, but the
contributionstothehonestyboxchangedsignificantly.Thepostersandtheamountsthat
peopleputintothecashbox(relativetotheamounttheyconsumed)areshowninfigure4.
Theydeserveacloselook.
Figure4
Onthefirstweekoftheexperiment(whichyoucanseeatthebottomofthefigure),two
wide-open eyes stare at the coffee or tea drinkers, whose average contribution was 70
penceperliterofmilk.Onweek2,thepostershowsflowersandaveragecontributions
drop to about 15 pence. The trend continues. On average, the users of the kitchen
contributed almost three times as much in “eye weeks” as they did in “flowerweeks.”
Evidently, a purely symbolic reminder of being watched prodded people into improved
behavior.Asweexpectatthispoint,theeffectoccurswithoutanyawareness.Doyounow
believethatyouwouldalsofallintothesamepattern?
Someyearsago,thepsychologistTimothyWilsonwroteabookwiththeevocative
titleStrangerstoOurselves.Youhavenowbeenintroducedtothatstrangerinyou,which
may be in control of much of what you do, although you rarely have a glimpse of it.
System1providestheimpressionsthatoftenturnintoyourbeliefs,andisthesourceofthe
impulsesthatoftenbecomeyourchoicesandyouractions.Itoffersatacitinterpretationof
whathappens toyou andaround you, linking the present withthe recentpast and with
expectations about the near future. It contains the model of the world that instantly
evaluateseventsasnormalorsurprising.Itisthesourceofyourrapidandoftenprecise
intuitive judgments. And it does most of this without your conscious awareness of its
activities.System1isalso,aswewillseeinthefollowingchapters,theoriginofmanyof
thesystematicerrorsinyourintuitions.
SpeakingofPriming
“Thesightofallthesepeopleinuniformsdoesnotprimecreativity.”
“The world makes much less sense than you think. The coherence comes mostly
fromthewayyourmindworks.”
“Theywereprimedtofindflaws,andthisisexactlywhattheyfound.”
“HisSystem1constructedastory,andhisSystem2believedit.Ithappenstoallel
“ImademyselfsmileandI’mactuallyfeelingbetter!”
P
CognitiveEase
Wheneveryouareconscious,andperhapsevenwhenyouarenot,multiplecomputations
are going on in your brain, which maintain and update current answers to some key
questions:Isanythingnewgoingon?Isthereathreat?Arethingsgoingwell?Shouldmy
attentionberedirected?Ismoreeffortneededforthistask?Youcanthinkofacockpit,
withasetofdialsthatindicatethecurrentvaluesofeachoftheseessentialvariables.The
assessments are carried out automatically by System 1, and one of their functions is to
determinewhetherextraeffortisrequiredfromSystem2.
One of the dials measures cognitive ease, and its range is between “Easy” and
“Strained.”Easyisasignthatthingsaregoingwell—nothreats,nomajornews,noneed
toredirectattentionormobilizeeffort.Strainedindicatesthataproblemexists,whichwill
requireincreasedmobilizationofSystem2.Conversely,youexperiencecognitivestrain.
Cognitivestrainisaffectedbyboththecurrentlevelofeffortandthepresenceofunmet
demands. The surprise is that a single dial of cognitive ease is connected to a large
networkofdiverseinputsandoutputs.Figure5tellsthestory.
Thefiguresuggeststhatasentencethatisprintedinaclearfont,orhasbeenrepeated,
or has been primed, will be fluently processed with cognitive ease. Hearing a speaker
whenyouareinagoodmood,orevenwhenyouhaveapencilstuckcrosswiseinyour
mouth to make you “smile,” also induces cognitive ease. Conversely, you experience
cognitivestrainwhenyoureadinstructionsinapoorfont,orinfaintcolors,orwordedin
complicatedlanguage,orwhenyouareinabadmood,andevenwhenyoufrown.
Figure5.CausesandConsequencesofCognitiveEase
Thevariouscausesofeaseorstrainhaveinterchangeableeffects.Whenyouareina
stateofcognitiveease,youareprobablyinagoodmood,likewhatyousee,believewhat
youhear,trustyourintuitions,andfeelthatthecurrentsituationiscomfortablyfamiliar.
Youarealsolikelytoberelativelycasualandsuperficialinyourthinking.Whenyoufeel
strained,youaremorelikelytobevigilantandsuspicious,investmoreeffortinwhatyou
aredoing,feellesscomfortable,andmakefewererrors,butyoualsoarelessintuitiveand
lesscreativethanusual.
IllusionsofRemembering
Thewordillusionbringsvisualillusionstomind,becauseweareallfamiliarwithpictures
thatmislead.Butvisionisnottheonlydomainofillusions;memoryisalsosusceptibleto
them,asisthinkingmoregenerally.
DavidStenbill,MonicaBigoutski,Sh”imight=sispictanaTirana.Ijustmadeupthese
names. If you encounter any of them within the next few minutes you are likely to
rememberwhereyousawthem.Youknow,andwillknowforawhile,thatthesearenot
thenamesofminorcelebrities.Butsupposethatafewdaysfromnowyouareshowna
longlistofnames,includingsomeminorcelebritiesand“new”namesofpeoplethatyou
haveneverheardof;yourtaskwillbetocheckeverynameofacelebrityinthelist.There
isasubstantialprobabilitythatyouwillidentifyDavidStenbillasawell-knownperson,
althoughyouwillnot(ofcourse)knowwhetheryouencounteredhisnameinthecontext
ofmovies,sports,orpolitics.LarryJacoby,thepsychologistwhofirstdemonstratedthis
memoryillusioninthelaboratory,titledhisarticle“BecomingFamousOvernight.”How
does this happen? Start by asking yourself how you know whether or not someone is
famous.Insomecasesoftrulyfamouspeople(orofcelebritiesinanareayoufollow),you
have a mental file with rich information about a person—think Albert Einstein, Bono,
Hillary Clinton. But you will have no file of information about David Stenbill if you
encounterhisnameinafewdays.Allyouwillhaveisasenseoffamiliarity—youhave
seenthisnamesomewhere.
Jacoby nicely stated the problem: “The experience of familiarity has a simple but
powerfulqualityof‘pastness’thatseemstoindicatethatitisadirectreflectionofprior
experience.” This quality of pastness is an illusion. The truth is, as Jacoby and many
followers have shown, that the name David Stenbill will look familiar when you see it
becauseyouwillseeitmoreclearly.Wordsthatyouhaveseenbeforebecomeeasiertosee
again—youcanidentifythembetterthanotherwordswhentheyareshownverybrieflyor
maskedbynoise,andyouwillbequicker(byafewhundredthsofasecond)toreadthem
thantoreadotherwords.Inshort,youexperiencegreatercognitiveeaseinperceivinga
wordyouhaveseenearlier,anditisthissenseofeasethatgivesyoutheimpressionof
familiarity.
Figure5suggestsawaytotestthis.Chooseacompletelynewword,makeiteasierto
see,anditwillbemorelikelytohavethequalityofpastness.Indeed,anewwordismore
likelytoberecognizedasfamiliarifitisunconsciouslyprimedbyshowingitforafew
milliseconds just before the test, or if it is shown in sharper contrast than some other
wordsinthelist.Thelinkalsooperatesintheotherdirection.Imagineyouareshownalist
ofwordsthataremoreorlessoutoffocus.Someofthewordsareseverelyblurred,others
lessso,andyourtaskistoidentifythewordsthatareshownmoreclearly.Awordthatyou
haveseenrecentlywillappeartobeclearerthanunfamiliarwords.Asfigure5indicates,
the various ways of inducing cognitive ease or strain are interchangeable; you may not
knowpreciselywhatitisthatmakesthingscognitivelyeasyorstrained.Thisishowthe
illusionoffamiliaritycomesabout.
IllusionsofTruth
“NewYorkisalargecityintheUnitedStates.”“ThemoonrevolvesaroundEarth.”“A
chicken has four legs.” In all these cases, you quickly retrieved a great deal of related
information,almostallpointingonewayoranother.Youknewsoonafterreadingthem
that the first two statements are true and the last one is false. Note, however, that the
statement “A chicken has three legs” is more obviously false than “A chicken has four
legs.”Yourassociativemachineryslowsthejudgmentofthelattersentencebydelivering
thefactthatmanyanimalshavefourlegs,andperhapsalsothatsupermarketsoftensell
chickenordblurred, legs in packages of four. System 2 was involved in sifting that
information,perhaps raising theissueofwhetherthequestionaboutNewYorkwastoo
easy,orcheckingthemeaningofrevolves.
Thinkofthelasttimeyoutookadrivingtest.Isittruethatyouneedaspeciallicense
todriveavehiclethatweighsmorethanthreetons?Perhapsyoustudiedseriouslyandcan
rememberthesideofthepageonwhichtheanswerappeared,aswellasthelogicbehind
it. This is certainly not how I passed driving tests when I moved to a new state. My
practicewastoreadthebookletofrulesquicklyonceandhopeforthebest.Iknewsome
oftheanswersfromtheexperienceofdrivingforalongtime.Buttherewerequestions
wherenogoodanswercametomind,whereallIhadtogobywascognitiveease.Ifthe
answerfeltfamiliar,Iassumedthatitwasprobablytrue.Ifitlookednew(orimprobably
extreme),Irejectedit.TheimpressionoffamiliarityisproducedbySystem1,andSystem
2reliesonthatimpressionforatrue/falsejudgment.
Thelessonoffigure5isthatpredictableillusionsinevitablyoccurifajudgmentis
basedonanimpressionofcognitiveeaseorstrain.Anythingthatmakesiteasierforthe
associativemachinetorunsmoothlywillalsobiasbeliefs.Areliablewaytomakepeople
believeinfalsehoodsisfrequentrepetition,becausefamiliarityisnoteasilydistinguished
fromtruth.Authoritarianinstitutionsand marketershavealwaysknown this fact.Butit
waspsychologistswhodiscoveredthatyoudonothavetorepeattheentirestatementofa
factorideatomakeitappeartrue.Peoplewhowererepeatedlyexposedtothephrase“the
bodytemperatureofachicken”weremorelikelytoacceptastruethestatementthat“the
bodytemperatureofachickenis144°”(oranyotherarbitrarynumber).Thefamiliarityof
one phrase in the statement sufficed to make the whole statement feel familiar, and
therefore true. If you cannot remember the source of a statement, and have no way to
relateittootherthingsyouknow,youhavenooptionbuttogowiththesenseofcognitive
ease.
HowtoWriteaPersuasiveMessage
Supposeyoumustwriteamessagethatyouwanttherecipientstobelieve.Ofcourse,your
messagewillbetrue,butthatisnotnecessarilyenoughforpeopletobelievethatitistrue.
Itisentirelylegitimateforyoutoenlistcognitiveeasetoworkinyourfavor,andstudies
oftruthillusionsprovidespecificsuggestionsthatmayhelpyouachievethisgoal.
Thegeneralprincipleisthatanythingyoucandotoreducecognitivestrainwillhelp,
soyoushouldfirstmaximizelegibility.Comparethesetwostatements:
AdolfHitlerwasbornin1892.
AdolfHitlerwasbornin1887.
Botharefalse(Hitlerwasbornin1889),butexperimentshaveshownthatthefirstismore
likelytobebelieved.Moreadvice:ifyourmessageistobeprinted,usehigh-qualitypaper
tomaximizethecontrastbetweencharactersandtheirbackground.Ifyouusecolor,you
aremorelikelytobebelievedifyourtextisprintedinbrightblueorredthaninmiddling
shadesofgreen,yellow,orpaleblue.
Ifyoucareaboutbeingthoughtcredibleandintelligent,donotusecomplexlanguage
wheresimplerlanguagewilldo.MyPrincetontoncolleagueDannyOppenheimerrefuted
amythprevalentawotoncolmongundergraduatesaboutthevocabularythatprofessors
find most impressive. In an article titled “Consequences of Erudite Vernacular Utilized
IrrespectiveofNecessity:ProblemswithUsingLongWordsNeedlessly,”heshowedthat
couchingfamiliarideasinpretentiouslanguageistakenasasignofpoorintelligenceand
lowcredibility.
Inadditiontomakingyourmessagesimple,trytomakeitmemorable.Putyourideas
inverseifyoucan;theywillbemorelikelytobetakenastruth.Participantsinamuch
citedexperimentreaddozensofunfamiliaraphorisms,suchas:
Woesunitefoes.
Littlestrokeswilltumblegreatoaks.
Afaultconfessedishalfredressed.
Otherstudentsreadsomeofthesameproverbstransformedintononrhymingversions:
Woesuniteenemies.
Littlestrokeswilltumblegreattrees.
Afaultadmittedishalfredressed.
Theaphorismswerejudgedmoreinsightfulwhentheyrhymedthanwhentheydidnot.
Finally, if you quote a source, choose one with a name that is easy to pronounce.
Participants in an experiment were asked to evaluate the prospects of fictitious Turkish
companiesonthebasisofreportsfromtwobrokeragefirms.Foreachstock,oneofthe
reportscamefromaneasilypronouncedname(e.g.,Artan)andtheotherreportcamefrom
a firm with an unfortunate name (e.g., Taahhut). The reports sometimes disagreed. The
bestprocedurefortheobserverswouldhavebeentoaveragethetworeports,butthisis
not what they did. They gave much more weight to the report from Artan than to the
reportfromTaahhut.RememberthatSystem2islazyandthatmentaleffortisaversive.If
possible, the recipients of your message want to stay away from anything that reminds
themofeffort,includingasourcewithacomplicatedname.
Allthisisverygoodadvice,butweshouldnotgetcarriedaway.High-qualitypaper,
brightcolors,andrhymingorsimplelanguagewillnotbemuchhelpifyourmessageis
obviouslynonsensical,orifitcontradictsfactsthatyouraudienceknowstobetrue.The
psychologistswhodotheseexperimentsdonotbelievethatpeoplearestupidorinfinitely
gullible.Whatpsychologistsdobelieveisthatallofuslivemuchofourlifeguidedbythe
impressions of System 1—and we often do not know the source of these impressions.
Howdoyouknowthatastatementistrue?Ifitisstronglylinkedbylogicorassociationto
otherbeliefsorpreferencesyouhold,orcomesfromasourceyoutrustandlike,youwill
feel a sense of cognitive ease. The trouble is that there may be other causes for your
feelingofease—includingthequalityofthefontandtheappealingrhythmoftheprose—
andyouhavenosimplewayoftracingyourfeelingstotheirsource.Thisisthemessage
offigure5:thesenseofeaseorstrainhasmultiplecauses,anditisdifficulttoteasethem
apart.Difficult,butnotimpossible.Peoplecanovercomesomeofthesuperficialfactors
that produce illusions of truth when strongly motivated to do so. On most occasions,
however,thelazySystem2willadoptthesuggestionsofSystem1andmarchon.
StrainandEffort
Thesymmetryofmanyassociativeconnectionswasadominantthemeinthediscussionof
associativecoherence.Aswesawearlier,peoplewhoaremadeto“smile”or“frown”by
stickingapencilintheirmouthorholdingaballbetweentheirfurrowedbrowsareprone
toexperience the emotionsthat frowningand smilingnormallyexpress. Thesame self-
reinforcingreciprocityisfoundinstudiesofcognitiveease.Ontheonehand,cognitive
strainisexperiencedwhentheeffortfuloperationsofSystem2areengaged.Ontheother
hand,theexperienceofcognitivestrain,whateveritssource,tendstomobilizeSystem2,
shiftingpeople’s approach to problemsfromacasualintuitivemodetoamoreengaged
andanalyticmode.
The bat-and-ball problem was mentioned earlier as a test of people’s tendency to
answerquestionswiththefirstideathatcomestotheirmind,withoutcheckingit.Shane
Frederick’sCognitiveReflectionTestconsistsofthebat-and-ballproblemandtwoothers,
allchosenbecausetheyevokeanimmediateintuitiveanswerthatisincorrect.Theother
twoitemsintheCRTare:
If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100
machinestomake100widgets?
100minutesOR5minutes
Inalake,thereisapatchoflilypads.Everyday,thepatchdoublesinsize.
Ifittakes48daysforthepatchtocovertheentirelake,howlongwouldittakefor
thepatchtocoverhalfofthelake?
24daysOR47days
Thecorrectanswersto both problemsareina footnote at thebottomofthe page.*The
experimenters recruited 40 Princeton students to take the CRT. Half of them saw the
puzzlesinasmallfontinwashed-outgrayprint.Thepuzzleswerelegible,butthe font
inducedcognitivestrain.Theresultstellaclearstory:90%ofthestudentswhosawthe
CRTinnormalfontmadeatleastonemistakeinthetest,buttheproportiondroppedto
35% when the font was barely legible. You read this correctly: performance was better
with the bad font. Cognitive strain, whatever its source, mobilizes System 2, which is
morelikelytorejecttheintuitiveanswersuggestedbySystem1.
ThePleasureofCognitiveEase
An article titled “Mind at Ease Puts a Smile on the Face” describes an experiment in
which participants were briefly shown pictures of objects. Some of these pictures were
made easier to recognize by showing the outline of the object just before the complete
image was shown, so briefly that the contours were never noticed. Emotional reactions
weremeasuredbyrecordingelectricalimpulsesfromfacialmuscles,registeringchanges
ofexpressionthataretooslightandtoobrieftobedetectablebyobservers.Asexpected,
peopleshowed a faintsmileand relaxedbrows when thepictures were easierto see.It
appearstobeafeatureofSystem1thatcognitiveeaseisassociatedwithgoodfeelings.
As expected, easily pronounced words evoke a favorable attitude. Companies with
pronounceablenamesdmisorrectlobetterthanothersforthefirstweekafterthestockis
issued,thoughtheeffectdisappearsovertime.Stockswithpronounceabletradingsymbols
(likeKARorLUNMOO)outperformthosewithtongue-twistingtickerslikePXGorRDO
—and they appear to retain a small advantage over some time. A study conducted in
Switzerland found that investors believe that stocks with fluent names like Emmi,
Swissfirst,andCometwillearnhigherreturnsthanthosewithclunkylabelslikeGeberit
andYpsomed.
Aswesawinfigure5,repetitioninducescognitiveeaseandacomfortingfeelingof
familiarity. The famed psychologist Robert Zajonc dedicated much of his career to the
studyofthelinkbetweentherepetitionofanarbitrarystimulusandthemildaffectionthat
peopleeventuallyhaveforit.Zajonccalleditthemereexposureeffect.Ademonstration
conductedinthestudentnewspapersoftheUniversityofMichiganandofMichiganState
Universityisoneofmyfavoriteexperiments.Foraperiodofsomeweeks,anad-likebox
appearedonthefrontpageofthepaper,whichcontainedoneofthefollowingTurkish(or
Turkish-sounding)words:kadirga,saricik,biwonjni,nansoma,andiktitaf.Thefrequency
withwhichthewordswererepeatedvaried:oneofthewordswasshownonlyonce,the
othersappearedontwo,five,ten,ortwenty-fiveseparateoccasions.(Thewordsthatwere
presentedmostofteninoneoftheuniversitypapersweretheleastfrequentintheother.)
Noexplanationwasoffered,andreaders’querieswereansweredbythestatementthat“the
purchaserofthedisplaywishedforanonymity.”
Whenthemysteriousseriesofadsended,theinvestigatorssentquestionnairestothe
university communities, asking for impressions of whether each of the words “means
something‘good’orsomething‘bad.’”Theresultswerespectacular:thewordsthatwere
presentedmorefrequentlywereratedmuchmorefavorablythanthewordsthathadbeen
shownonlyonceortwice.The finding has been confirmedinmanyexperiments,using
Chineseideographs,faces,andrandomlyshapedpolygons.
Themereexposureeffectdoesnotdependontheconsciousexperienceoffamiliarity.
In fact, the effect does not depend on consciousness at all: it occurs even when the
repeatedwordsorpicturesareshownsoquicklythattheobserversneverbecomeawareof
havingseenthem.Theystillenduplikingthewordsorpicturesthatwerepresentedmore
frequently.Asshouldbeclearbynow,System1canrespondtoimpressionsofeventsof
which System 2 is unaware. Indeed, the mere exposure effect is actually stronger for
stimulithattheindividualneverconsciouslysees.
Zajonc argued that the effect of repetition on liking is a profoundly important
biological fact, and that it extends to all animals. To survive in a frequently dangerous
world,anorganismshouldreactcautiouslytoanovelstimulus,withwithdrawalandfear.
Survivalprospectsarepoorforananimalthatisnotsuspiciousofnovelty.However,itis
also adaptive for the initial caution to fade if the stimulus is actually safe. The mere
exposure effect occurs, Zajonc claimed, because the repeated exposure of a stimulus is
followed by nothing bad. Such a stimulus will eventually become a safety signal, and
safetyisgood.Obviously,thisargumentisnotrestrictedtohumans.Tomakethatpoint,
oneofZajonc’sassociatesexposedtwosetsoffertilechickeneggstodifferenttones.After
theyhatched,thechicksconsistentlyemittedfewerdistresscallswhenexposedtothetone
theyhadheardwhileinhabitingtheshell.
Zajoncofferedaneloquentsummaryofhingictsprogramofresearch:
Theconsequencesofrepeatedexposuresbenefittheorganisminitsrelationstothe
immediate animate and inanimate environment. They allow the organism to
distinguishobjectsandhabitatsthataresafefromthosethatarenot,andtheyarethe
mostprimitivebasisofsocialattachments.Therefore,theyformthebasisforsocial
organizationandcohesion—thebasicsourcesofpsychologicalandsocialstability.
ThelinkbetweenpositiveemotionandcognitiveeaseinSystem1hasalongevolutionary
history.
Ease,Mood,andIntuition
Around1960,ayoungpsychologistnamedSarnoffMednickthoughthehadidentifiedthe
essenceofcreativity.Hisideawasassimpleasitwaspowerful:creativityisassociative
memorythatworksexceptionallywell.Hemadeupatest,calledtheRemoteAssociation
Test(RAT),whichisstilloftenusedinstudiesofcreativity.
Foraneasyexample,considerthefollowingthreewords:
cottageSwisscake
Canyouthinkofawordthatisassociatedwithallthree?Youprobablyworkedoutthat
theanswerischeese.Nowtrythis:
divelightrocket
Thisproblemismuchharder,butithasauniquecorrectanswer,whicheveryspeakerof
English recognizes, although less than 20% of a sample of students found it within 15
seconds. The answer is sky. Of course, not every triad of words has a solution. For
example,thewordsdream,ball,bookdonothaveasharedassociationthateveryonewill
recognizeasvalid.
Several teams of German psychologists that have studied the RAT in recent years
havecomeupwithremarkablediscoveriesaboutcognitiveease.Oneoftheteamsraised
twoquestions:Canpeoplefeelthatatriadofwordshasasolutionbeforetheyknowwhat
thesolutionis?Howdoesmoodinfluenceperformanceinthistask?Tofindout,theyfirst
made some of their subjects happy and others sad, by asking them to think for several
minutesabouthappyorsadepisodesintheirlives.Thentheypresentedthesesubjectswith
aseriesoftriads,halfofthemlinked(suchasdive,light,rocket)andhalfunlinked(such
as dream, ball, book), and instructed them to press one of two keys very quickly to
indicatetheirguessaboutwhetherthetriadwaslinked.Thetimeallowedforthisguess,2
seconds,wasmuchtooshortfortheactualsolutiontocometoanyone’smind.
Thefirstsurpriseisthatpeople’sguessesaremuchmoreaccuratethantheywouldbe
bychance.Ifindthisastonishing.Asenseofcognitiveeaseisapparentlygeneratedbya
veryfaintsignalfromthe associative machine, which“knows”thatthethreewords are
coherent (share an association) long before the association is retrieved. The role of
cognitiveeaseinthejudgmentwasconfirmedexperimentallybyanotherGermanteam:
manipulationsthatincreasecognitiveease(priming,aclearfont,pre-exposingwords)all
increasethetendencytoseethewordsaslinked.
Another remarkable discovery is the powerful effect of mood on this intuitive
performance. The experimentershape tende computed an “intuition index” to measure
accuracy. They found that putting the participants in a good mood before the test by
having them think happy thoughts more than doubled accuracy. An even more striking
resultisthatunhappysubjectswerecompletelyincapableofperformingtheintuitivetask
accurately;theirguesseswerenobetterthanrandom.Moodevidentlyaffectstheoperation
ofSystem1:whenweareuncomfortableandunhappy,welosetouchwithourintuition.
These findings add to the growing evidence that good mood, intuition, creativity,
gullibility,andincreasedrelianceonSystem1formacluster.Attheotherpole,sadness,
vigilance,suspicion,ananalyticapproach,andincreasedeffortalsogotogether.Ahappy
moodloosensthecontrolofSystem2overperformance:wheninagoodmood,people
becomemoreintuitiveandmorecreativebutalsolessvigilantandmorepronetological
errors.Hereagain,asinthemereexposureeffect,theconnectionmakesbiologicalsense.
Agoodmoodisasignalthatthingsaregenerallygoingwell,theenvironmentissafe,and
itisallrighttoletone’sguarddown.Abadmoodindicatesthatthingsarenotgoingvery
well,theremaybeathreat,andvigilanceisrequired.Cognitiveeaseisbothacauseanda
consequenceofapleasantfeeling.
The Remote Association Test has more to tell us about the link between cognitive
easeandpositiveaffect.Brieflyconsidertwotriadsofwords:
sleepmailswitch
saltdeepfoam
Youcouldnotknowit,ofcourse,butmeasurementsofelectricalactivityinthemusclesof
your face would probably have shown a slight smile when you read the second triad,
which is coherent (sea is the solution). This smiling reaction to coherence appears in
subjects who are told nothing about common associates; they are merely shown a
verticallyarrangedtriadofwordsandinstructedtopressthespacebaraftertheyhaveread
it.Theimpressionofcognitiveeasethatcomeswiththepresentationofacoherenttriad
appearstobemildlypleasurableinitself.
Theevidencethatwehaveaboutgoodfeelings,cognitiveease,andtheintuitionof
coherenceis,asscientistssay,correlationalbutnotnecessarilycausal.Cognitiveeaseand
smilingoccurtogether,butdothegoodfeelingsactuallyleadtointuitionsofcoherence?
Yes, they do. The proof comes from a clever experimental approach that has become
increasingly popular. Some participants were given a cover story that provided an
alternativeinterpretationfortheirgoodfeeling:theyweretoldaboutmusicplayedintheir
earphones that “previous research showed that this music influences the emotional
reactionsofindividuals.”Thisstorycompletelyeliminatestheintuitionofcoherence.The
findingshowsthatthebriefemotionalresponsethatfollowsthepresentationofatriadof
words (pleasant if the triad is coherent, unpleasant otherwise) is actually the basis of
judgments of coherence. There is nothing here that System 1 cannot do. Emotional
changesarenowexpected,andbecausetheyareunsurprisingtheyarenotlinkedcausally
tothewords.
This is as good as psychological research ever gets, in its combination of
experimentaltechniquesandinitsresults,whicharebothrobustandextremelysurprising.
We have learned a great deal about the automatic workings of System 1 in the last
decades.Muchofwhatwenowknowwouldhavesoundedlikesciencefictionthirtyor
fortyyearsago.Itwasbeyondimaginingthatbadfontinfluencesjudgmentsoftruthand
improvescognitiveperformance,orthatanemotionalresponsetothecognitiveeaseofa
triprthataadofwordsmediatesimpressionsofcoherence.Psychologyhascomealong
way.
SpeakingofCognitiveEase
“Let’snotdismisstheirbusinessplanjustbecausethefontmakesithardtoread.”
“We must be inclined to believe it because it has been repeated so often, but let’s
thinkitthroughagain.”
“Familiaritybreedsliking.Thisisamereexposureeffect.”
“I’minaverygoodmoodtoday,andmySystem2isweakerthanusual.Ishouldbe
extracareful.”
P
Norms,Surprises,andCauses
The central characteristics and functions of System 1 and System 2 have now been
introduced, with a more detailed treatment of System 1. Freely mixing metaphors, we
have in our head a remarkably powerful computer, not fast by conventional hardware
standards,butabletorepresentthestructureofourworldbyvarioustypesofassociative
links in a vast network of various types of ideas. The spreading of activation in the
associative machine is automatic, but we (System 2) have some ability to control the
search of memory, and also to program it so that the detection of an event in the
environment can attract attention. We next go into more detail of the wonders and
limitationofwhatSystem1cando.
AssessingNormality
ThemainfunctionofSystem1istomaintainandupdateamodelofyourpersonalworld,
whichrepresentswhatisnormalinit.Themodelisconstructedbyassociationsthatlink
ideasofcircumstances,events,actions,andoutcomesthatco-occurwithsomeregularity,
eitheratthesametimeorwithinarelativelyshortinterval.Astheselinksareformedand
strengthened,thepatternofassociatedideascomestorepresentthestructureofeventsin
yourlife,anditdeterminesyourinterpretationofthepresentaswellasyourexpectations
ofthefuture.
Acapacityforsurpriseisanessentialaspectofourmentallife,andsurpriseitselfis
themostsensitiveindicationofhowweunderstandourworldandwhatweexpectfromit.
Therearetwomainvarietiesofsurprise.Someexpectationsareactiveandconscious—
youknowyouarewaitingforaparticularevent to happen. When the hour is near,you
maybeexpectingthesoundofthedoorasyourchildreturnsfromschool;whenthedoor
opens you expect the sound of a familiar voice. You will be surprised if an actively
expected event does not occur. But there is a much larger category of events that you
expectpassively;youdon’twaitforthem,butyouarenotsurprisedwhentheyhappen.
These are events that are normal in a situation, though not sufficiently probable to be
activelyexpected.
Asingleincidentmaymakea recurrencelesssurprising.Someyearsago, my wife
and I were of dealWhen normvacationing in a small island resort on the Great Barrier
Reef.Thereareonlyfortyguestroomsontheisland.Whenwecametodinner,wewere
surprised to meet an acquaintance, a psychologist named Jon. We greeted each other
warmlyandcommentedonthecoincidence.Jonlefttheresort the next day.Abouttwo
weekslater,wewereinatheaterinLondon.Alatecomersatnexttomeafterthelights
wentdown.Whenthelightscameupfortheintermission,IsawthatmyneighborwasJon.
MywifeandIcommentedlaterthatweweresimultaneouslyconsciousoftwofacts:first,
thiswasamoreremarkablecoincidencethanthefirstmeeting;second,weweredistinctly
lesssurprisedtomeetJononthesecondoccasionthanwehadbeenonthefirst.Evidently,
thefirstmeetinghadsomehowchangedtheideaofJoninourminds.Hewasnow“the
psychologist who shows up when we travel abroad.” We (System 2) knew this was a
ludicrousidea,butourSystem1hadmadeitseemalmostnormaltomeetJoninstrange
places.Wewouldhaveexperiencedmuchmoresurpriseifwehadmetanyacquaintance
otherthanJoninthenextseatofaLondontheater.Byanymeasureofprobability,meeting
Jon in the theater was much less likely than meeting any one of our hundreds of
acquaintances—yetmeetingJonseemedmorenormal.
Under some conditions, passive expectations quickly turn active, as we found in
anothercoincidence.On a Sunday evening someyearsago,weweredrivingfromNew
York City to Princeton, as we had been doing every week for a longtime. We saw an
unusualsight:acaronfirebythesideoftheroad.Whenwereachedthesamestretchof
roadthefollowingSunday,anothercarwasburningthere.Hereagain,wefoundthatwe
weredistinctlylesssurprisedonthesecondoccasionthanwehadbeenonthefirst.This
wasnow“theplacewherecarscatchfire.”Becausethecircumstancesoftherecurrence
were the same, the second incident was sufficient to create an active expectation: for
months,perhapsforyears,aftertheeventwewereremindedofburningcarswheneverwe
reachedthatspotoftheroadandwerequitepreparedtoseeanotherone(butofcoursewe
neverdid).
ThepsychologistDaleMillerandIwroteanessayinwhichweattemptedtoexplain
howeventscometobeperceivedasnormalorabnormal.Iwilluseanexamplefromour
descriptionof“normtheory,”althoughmyinterpretationofithaschangedslightly:
An observer, casually watching the patrons at a neighboring table in a fashionable
restaurant, notices that the first guest to taste the soup winces, as if in pain. The
normality of a multitude of events will be altered by this incident. It is now
unsurprisingfortheguestwhofirsttastedthesouptostartleviolentlywhentouched
byawaiter;itisalsounsurprisingforanotherguesttostifleacrywhentastingsoup
fromthesametureen.Theseeventsandmanyothersappearmorenormalthanthey
would have otherwise, but not necessarily because they confirm advance
expectations. Rather, they appear normal because they recruit the original episode,
retrieveitfrommemory,andareinterpretedinconjunctionwithit.
Imagineyourselftheobserverattherestaurant.Youweresurprisedbythefirstguest’s
unusualreactiontothesoup,andsurprisedagainbythestartledresponsetothewaiters
touch.However,thesecondabnormaleventwillretrievethefirstfrommemory,andboth
make sense together. The two events fit into a pattern, in which the guest is an
exceptionallytenseperson.Ontheotherhand,ifthenextthingthathappensafterthefirst
guest’s grimace is that another customer rejects the soup, these two surprises will be
linkedandthehinsursoupwillsurelybeblamed.
“HowmanyanimalsofeachkinddidMosestakeintotheark?”Thenumberofpeople
whodetectwhatiswrongwiththisquestionissosmallthatithasbeendubbedthe“Moses
illusion.”Mosestooknoanimalsintotheark;Noahdid.Liketheincidentofthewincing
soupeater,theMosesillusionisreadilyexplainedbynormtheory.Theideaofanimals
goingintothearksetsupabiblicalcontext,andMosesisnotabnormalinthatcontext.
Youdidnotpositivelyexpecthim,butthementionofhisnameisnotsurprising.Italso
helpsthatMosesandNoahhavethesamevowelsoundandnumberofsyllables.Aswith
the triads that produce cognitive ease, you unconsciously detect associative coherence
between “Moses” and “ark” and so quickly accept the question. Replace Moses with
GeorgeW.Bushinthissentenceandyouwillhaveapoorpoliticaljokebutnoillusion.
Whensomethingcementdoesnotfitintothecurrentcontextofactivatedideas,the
systemdetectsanabnormality,asyoujustexperienced.Youhadnoparticularideaofwhat
was coming after something, but you knew when the word cement came that it was
abnormal in that sentence. Studies of brain responses have shown that violations of
normalityaredetectedwithastonishingspeedandsubtlety.Inarecentexperiment,people
heardthesentence“Earth revolves aroundthetrouble every year.”Adistinctivepattern
wasdetectedinbrainactivity,startingwithintwo-tenthsofasecondoftheonsetofthe
oddword.Evenmoreremarkable,thesamebrainresponseoccursatthesamespeedwhen
amalevoicesays,“IbelieveIampregnantbecauseIfeelsickeverymorning,”orwhenan
upper-class voice says, “I have a large tattoo on my back.” A vast amount of world
knowledge must instantly be brought to bear for the incongruity to be recognized: the
voicemustbeidentifiedasupper-classEnglishandconfrontedwiththegeneralizationthat
largetattoosareuncommonintheupperclass.
Weareabletocommunicatewitheachotherbecauseourknowledgeoftheworldand
ouruseofwordsarelargelyshared.WhenImentionatable,withoutspecifyingfurther,
you understand that I mean a normal table. You know with certainty that its surface is
approximately level and that it has far fewer than 25 legs. We have norms for a vast
number of categories, and these norms provide the background for the immediate
detectionofanomaliessuchaspregnantmenandtattooedaristocrats.
Toappreciatetheroleofnormsincommunication,considerthesentence“Thelarge
mouse climbed over the trunk of the very small elephant.” I can count on your having
normsforthesizeofmiceandelephantsthatarenottoofarfrommine.Thenormsspecify
atypicalor average sizeforthese animals, andtheyalso contain informationaboutthe
rangeorvariabilitywithinthecategory.Itisveryunlikelythateitherofusgottheimage
inourmind’seyeofamouselargerthananelephantstridingoveranelephantsmallerthan
amouse.Instead,weeachseparatelybutjointlyvisualizedamousesmallerthanashoe
clamberingoveranelephantlargerthanasofa.System1,whichunderstandslanguage,has
accesstonormsofcategories,whichspecifytherangeofplausiblevaluesaswellasthe
mosttypicalcases.
SeeingCausesandIntentions
“Fred’sparentsarrivedlate.Thecatererswereexpectedsoon.Fredwasangry.”Youknow
why Fred was angry, and it is not because the caterers were expected soon. In your
networkofassociationsmalsinco,angerandlackofpunctualityarelinked asaneffect
anditspossiblecause,butthereisnosuchlinkbetweenangerandtheideaofexpecting
caterers.Acoherentstorywasinstantlyconstructedasyouread;youimmediatelyknew
thecauseofFred’sanger.Findingsuchcausalconnectionsispartofunderstandingastory
andisanautomaticoperationofSystem1.System2,yourconsciousself,wasofferedthe
causalinterpretationandacceptedit.
A story in Nassim Taleb’s The Black Swan illustrates this automatic search for
causality. He reports that bond prices initially rose on the day of Saddam Hussein’s
capture in his hiding place in Iraq. Investors were apparently seeking safer assets that
morning, and the Bloomberg News service flashed this headline: U.S. TREASURIES RISE;
HUSSEINCAPTUREMAYNOTCURBTERRORISM.Halfanhourlater,bondpricesfellbackand
therevisedheadlineread:U.S.TREASURIESFALL;HUSSEINCAPTUREBOOSTSALLUREOFRISKY
ASSETS.Obviously,Hussein’scapturewasthemajoreventoftheday,andbecauseofthe
waytheautomaticsearchforcausesshapesourthinking,thateventwasdestinedtobethe
explanation of whatever happened in the market on that day. The two headlines look
superficiallylikeexplanationsofwhathappenedinthemarket,butastatementthatcan
explaintwocontradictoryoutcomesexplainsnothingatall.Infact,alltheheadlinesdois
satisfy our need for coherence: a large event is supposed to have consequences, and
consequences need causes to explain them. We have limited information about what
happenedonaday,andSystem1isadeptatfindingacoherentcausalstorythatlinksthe
fragmentsofknowledgeatitsdisposal.
Readthissentence:
AfterspendingadayexploringbeautifulsightsinthecrowdedstreetsofNewYork,
Janediscoveredthatherwalletwasmissing.
Whenpeoplewhohadreadthisbriefstory(alongwithmanyothers)weregivenasurprise
recalltest,thewordpickpocketwasmorestronglyassociatedwiththestorythantheword
sights,eventhoughthelatterwasactuallyinthesentencewhiletheformerwasnot.The
rules of associative coherence tell us what happened. The event of a lost wallet could
evokemanydifferentcauses:thewalletslippedoutofapocket,wasleftintherestaurant,
etc.However,whentheideasoflostwallet,NewYork,andcrowdsarejuxtaposed,they
jointlyevoketheexplanationthatapickpocketcausedtheloss.Inthestoryofthestartling
soup,theoutcome—whetheranothercustomerwincingatthetasteofthesouporthefirst
person’s extreme reaction to the waiters touch—brings about an associatively coherent
interpretationoftheinitialsurprise,completingaplausiblestory.
The aristocratic Belgian psychologist Albert Michotte published a book in 1945
(translated into English in 1963) that overturned centuries of thinking about causality,
going back at least to Hume’s examination of the association of ideas. The commonly
accepted wisdom was that we infer physical causality from repeated observations of
correlationsamongevents.Wehavehadmyriadexperiencesinwhichwesawoneobject
in motion touching another object, which immediately starts to move, often (but not
always)inthesamedirection.Thisiswhathappenswhenabilliardballhitsanother,andit
isalsowhathappenswhenyouknockoveravasebybrushingagainstit.Michottehada
differentidea:hearguedthatweseecausality,justasdirectlyasweseecolor.Tomakehis
point,hecreatedepisodesinnttiowhichablacksquaredrawnonpaperisseeninmotion;
it comes into contact with another square, which immediately begins to move. The
observers know that there is no real physical contact, but they nevertheless have a
powerful“illusionofcausality.”Ifthesecondobjectstartsmovinginstantly,theydescribe
it as having been “launched” by the first. Experiments have shown that six-month-old
infantssee thesequence ofevents as a cause-effectscenario, and they indicate surprise
whenthesequenceisaltered. Weareevidentlyreadyfrombirthtohaveimpressionsof
causality, which do not depend on reasoning about patterns of causation. They are
productsofSystem1.
In1944,ataboutthesametimeasMichottepublishedhisdemonstrationsofphysical
causality,thepsychologistsFritzHeiderandMary-AnnSimmelusedamethodsimilarto
Michotte’stodemonstratetheperceptionofintentionalcausality.Theymadeafilm,which
lasts all of one minute and forty seconds, in which you see a large triangle, a small
triangle,andacirclemovingaroundashapethatlookslikeaschematicviewofahouse
withanopendoor.Viewersseeanaggressivelargetrianglebullyingasmallertriangle,a
terrifiedcircle,thecircleandthesmalltrianglejoiningforcestodefeatthebully;theyalso
observemuchinteractionaroundadoorandthenanexplosivefinale.Theperceptionof
intentionandemotionisirresistible;onlypeopleafflictedbyautismdonotexperienceit.
Allthisisentirelyinyourmind,ofcourse.Yourmindisreadyandeveneagertoidentify
agents, assign them personality traits and specific intentions, and view their actions as
expressingindividualpropensities.Hereagain,theevidenceisthatwearebornprepared
tomakeintentionalattributions:infants under oneyearold identify bulliesandvictims,
andexpectapursuertofollowthemostdirectpathinattemptingtocatchwhateveritis
chasing.
The experience of freely willed action is quite separate from physical causality.
Althoughitisyourhandthatpicksupthesalt,youdonotthinkoftheeventintermsofa
chainofphysicalcausation.Youexperienceitascausedbyadecisionthatadisembodied
youmade,becauseyouwanted to add salttoyourfood.Many people finditnaturalto
describe their soul as the source and the cause of their actions. The psychologist Paul
Bloom,writinginTheAtlanticin2005,presentedtheprovocativeclaimthatourinborn
readinessto separatephysical andintentional causalityexplains thenear universalityof
religious beliefs. He observes that “we perceive the world of objects as essentially
separatefromtheworldofminds,makingitpossibleforustoenvisionsoullessbodiesand
bodilesssouls.”Thetwomodesofcausationthatwearesettoperceivemakeitnaturalfor
us to accept the two central beliefs of many religions: an immaterial divinity is the
ultimatecauseofthephysicalworld,andimmortalsoulstemporarilycontrolourbodies
while we live and leave them behind as we die. In Bloom’s view, the two concepts of
causalitywereshapedseparatelybyevolutionaryforces,buildingtheoriginsofreligion
intothestructureofSystem1.
Theprominenceofcausalintuitionsisarecurrentthemeinthisbookbecausepeople
are prone to apply causal thinking inappropriately, to situations that require statistical
reasoning.Statisticalthinkingderivesconclusionsaboutindividualcasesfromproperties
ofcategoriesandensembles.Unfortunately,System1doesnothavethecapabilityforthis
modeofreasoning;System2canlearntothink statistically,butfewpeoplereceivethe
necessarytraining.
The psychology of causality was the basis of my decision to describe psycl c to
thinhological processes by metaphors of agency, with little concern for consistency. I
sometimesrefertoSystem1asanagentwithcertaintraitsandpreferences,andsometimes
asanassociativemachinethatrepresentsrealitybyacomplexpatternoflinks.Thesystem
andthemachinearefictions;myreasonforusingthemisthattheyfitthewaywethink
aboutcauses.Heiderstrianglesandcirclesarenotreallyagents—itisjustveryeasyand
naturaltothinkofthemthatway.Itisamatterofmentaleconomy.Iassumethatyou(like
me)finditeasiertothinkaboutthemindifwedescribewhathappensintermsoftraits
andintentions(thetwosystems)andsometimesintermsofmechanicalregularities(the
associativemachine).Idonotintendtoconvinceyouthatthesystemsarereal,anymore
thanHeiderintendedyoutobelievethatthelargetriangleisreallyabully.
SpeakingofNormsandCauses
“Whenthesecondapplicantalsoturnedouttobeanoldfriendofmine,Iwasn’tquite
assurprised.Verylittlerepetitionisneededforanewexperiencetofeelnormal!”
“When we survey the reaction to these products, let’s make sure we don’t focus
exclusivelyontheaverage.Weshouldconsidertheentirerangeofnormalreactions.”
“Shecan’tacceptthatshewasjustunlucky;sheneedsacausalstory.Shewillendup
thinkingthatsomeoneintentionallysabotagedherwork.”
P
AMachineforJumpingtoConclusions
ThegreatcomedianDannyKayehadalinethathasstayedwithmesincemyadolescence.
Speakingofawomanhedislikes,hesays,“Herfavoritepositionisbesideherself,andher
favorite sport is jumping to conclusions.” The line came up, I remember, in the initial
conversationwithAmosTverskyabouttherationalityofstatisticalintuitions,andnowI
believeitoffersanaptdescriptionofhowSystem1functions.Jumpingtoconclusionsis
efficientiftheconclusionsarelikelytobecorrectandthecostsofanoccasionalmistake
acceptable,andifthejumpsavesmuchtimeandeffort.Jumpingtoconclusionsisrisky
whenthesituationisunfamiliar,thestakesarehigh,andthereisnotimetocollectmore
information. These are the circumstances in which intuitive errors are probable, which
maybepreventedbyadeliberateinterventionofSystem2.
NeglectofAmbiguityandSuppressionofDoubt
Figure6
What do the three exhibits in figure 6 have in common? The answer is that all are
ambiguous.YoualmostcertainlyreadthedisplayontheleftasABCandtheoneonthe
rightas121314,butthemiddleitemsinbothdisplaysareidentical.Youcouldjustas
wellhavereadeiomprthecvethemasA13Cor12B14,butyoudidnot.Whynot?The
same shape is read as a letter in a context of letters and as a number in a context of
numbers.Theentirecontexthelpsdeterminetheinterpretationofeachelement.Theshape
isambiguous,butyoujumptoaconclusionaboutitsidentityanddonotbecomeawareof
theambiguitythatwasresolved.
As for Ann, you probably imagined a woman with money on her mind, walking
towardabuildingwithtellersandsecurevaults.Butthisplausibleinterpretationisnotthe
onlypossibleone;thesentenceisambiguous.Ifanearliersentencehadbeen“Theywere
floatinggentlydowntheriver,”youwouldhaveimaginedanaltogetherdifferentscene.
Whenyouhavejustbeenthinkingofariver,thewordbankisnotassociatedwithmoney.
Intheabsenceofanexplicitcontext,System1generatedalikelycontextonitsown.We
knowthatitisSystem1becauseyouwerenotawareofthechoiceorofthepossibilityof
anotherinterpretation.Unlessyouhavebeencanoeingrecently,youprobablyspendmore
timegoingtobanksthanfloatingonrivers,andyouresolvedtheambiguityaccordingly.
Whenuncertain,System1betsonananswer,andthebetsareguidedbyexperience.The
rules of the betting are intelligent: recent events and the current context have the most
weight in determining an interpretation. When no recent event comes to mind, more
distant memories govern. Among your earliest and most memorable experiences was
singingyourABCs;youdidnotsingyourA13Cs.
Themostimportantaspectofbothexamplesisthatadefinitechoicewasmade,but
youdidnotknowit.Onlyoneinterpretationcametomind,andyouwereneverawareof
theambiguity.System1doesnotkeeptrackofalternativesthatitrejects,orevenofthe
factthattherewerealternatives.ConsciousdoubtisnotintherepertoireofSystem1;it
requires maintaining incompatible interpretations in mind at the same time, which
demandsmentaleffort.UncertaintyanddoubtarethedomainofSystem2.
ABiastoBelieveandConfirm
ThepsychologistDanielGilbert,widelyknownastheauthorofStumblingtoHappiness,
once wrote an essay, titled “How Mental Systems Believe,” in which he developed a
theoryofbelievingandunbelievingthathetracedtotheseventeenth-centuryphilosopher
Baruch Spinoza. Gilbert proposed that understanding a statement must begin with an
attempttobelieveit:youmustfirstknowwhattheideawouldmeanifitweretrue.Only
then can you decide whether or not to unbelieve it. The initial attempt to believe is an
automatic operation of System 1, which involves the construction of the best possible
interpretation of the situation. Even a nonsensical statement, Gilbert argues, will evoke
initialbelief.Tryhisexample:“whitefisheatcandy.”Youprobablywereawareofvague
impressionsoffishandcandyasanautomaticprocessofassociativememorysearchedfor
linksbetweenthetwoideasthatwouldmakesenseofthenonsense.
Gilbert sees unbelieving as an operation of System 2, and he reported an elegant
experiment to make his point. The participants saw nonsensical assertions, such as “a
dincaisaflame,”followedafterafewsecondsbyasingleword,“true”or“false.”They
were later tested for their memory of which sentences had been labeled “true.” In one
conditionoftheexperimentsubjectswere required toholddigitsinmemoryduring the
task.ThedisruptionofSystem2hadaselectiveeffect:itmadeitdifficultforpeopleto
“unbelieve” false sentences. In a later test of memory, the depleted par muumbling
toticipants ended up thinking that many of the false sentences were true. The moral is
significant:whenSystem2isotherwiseengaged,wewillbelievealmostanything.System
1isgullibleandbiasedtobelieve,System2isinchargeofdoubtingandunbelieving,but
System2issometimesbusy,andoftenlazy.Indeed,thereisevidencethatpeoplearemore
likelytobeinfluencedbyemptypersuasivemessages,suchascommercials,whentheyare
tiredanddepleted.
The operations of associative memory contribute to a general confirmation bias.
Whenasked,“IsSamfriendly?”differentinstancesofSam’sbehaviorwillcometomind
thanwouldifyouhadbeenasked“IsSamunfriendly?”Adeliberatesearchforconfirming
evidence, known as positive test strategy, is also how System 2 tests a hypothesis.
Contrarytotherulesofphilosophersofscience,whoadvisetestinghypothesesbytrying
to refute them, people (and scientists, quite often) seek data that are likely to be
compatiblewiththebeliefstheycurrentlyhold.TheconfirmatorybiasofSystem1favors
uncritical acceptance of suggestions and exaggeration of the likelihood of extreme and
improbableevents.IfyouareaskedabouttheprobabilityofatsunamihittingCalifornia
withinthenextthirtyyears,theimagesthatcometoyourmindarelikelytobeimagesof
tsunamis,inthemannerGilbertproposedfornonsensestatementssuchas“whitefisheat
candy.”Youwillbepronetooverestimatetheprobabilityofadisaster.
ExaggeratedEmotionalCoherence(HaloEffect)
Ifyoulikethepresident’spolitics,youprobablylikehisvoiceandhisappearanceaswell.
Thetendencytolike(ordislike)everythingaboutaperson—includingthingsyouhavenot
observed—is known as the halo effect. The term has been in use in psychology for a
century,butithasnotcomeintowideuseineverydaylanguage.Thisisapity,becausethe
haloeffectisagoodnameforacommonbiasthatplaysalargeroleinshapingourviewof
peopleandsituations.ItisoneofthewaystherepresentationoftheworldthatSystem1
generatesissimplerandmorecoherentthantherealthing.
YoumeetawomannamedJoanatapartyandfindherpersonableandeasytotalkto.
Nowhernamecomesupassomeonewhocouldbeaskedtocontributetoacharity.What
do you know about Joan’s generosity? The correct answer is that you know virtually
nothing,becausethereislittlereasontobelievethatpeoplewhoareagreeableinsocial
situations are also generous contributors to charities. But you like Joan and you will
retrieve the feeling of liking her when you think of her. You also like generosity and
generous people. By association, you are now predisposed to believe that Joan is
generous.Andnowthatyoubelievesheisgenerous,youprobablylikeJoanevenbetter
thanyoudidearlier,becauseyouhaveaddedgenerositytoherpleasantattributes.
RealevidenceofgenerosityismissinginthestoryofJoan,andthegapisfilledbya
guessthatfitsone’semotionalresponsetoher.Inothersituations,evidenceaccumulates
graduallyandtheinterpretationisshapedbytheemotionattachedtothefirstimpression.
Inanenduringclassicofpsychology,SolomonAschpresenteddescriptionsoftwopeople
andaskedforcommentsontheirpersonality.WhatdoyouthinkofAlanandBen?
Alan:intelligent—industrious—impulsive—critical—stubborn—envious
Ben:envious—The#82stubborn—critical—impulsive—industrious—intelligent
Ifyouarelikemostofus,youviewedAlanmuchmorefavorablythanBen.Theinitial
traitsinthelistchangetheverymeaningofthetraitsthatappearlater.Thestubbornnessof
anintelligentpersonisseenaslikelytobejustifiedandmayactuallyevokerespect,but
intelligence in an envious and stubborn person makes him more dangerous. The halo
effect is also an example of suppressed ambiguity: like the word bank, the adjective
stubbornisambiguousandwillbeinterpretedinawaythatmakesitcoherentwiththe
context.
There have been many variations on this research theme. Participants in one study
firstconsideredthefirstthreeadjectivesthatdescribeAlan;thentheyconsideredthelast
three,whichbelonged,theyweretold,toanotherperson.Whentheyhadimaginedthetwo
individuals,theparticipantswereaskedifitwasplausibleforallsixadjectivestodescribe
thesameperson,andmostofthemthoughtitwasimpossible!
Thesequenceinwhichweobservecharacteristicsofapersonisoftendeterminedby
chance.Sequencematters,however,becausethehaloeffectincreasestheweightoffirst
impressions,sometimestothepointthatsubsequentinformationismostlywasted.Early
in my career as a professor, I graded students’ essay exams in the conventional way. I
wouldpickuponetestbookletatatimeandreadallthatstudent’sessaysinimmediate
succession,gradingthemasIwent.Iwouldthencomputethetotalandgoontothenext
student. I eventually noticed that my evaluations of the essays in each booklet were
strikinglyhomogeneous.Ibegantosuspectthatmygradingexhibitedahaloeffect,and
that the first question I scored had a disproportionate effect on the overall grade. The
mechanismwassimple:ifIhadgivenahighscoretothefirstessay,Igavethestudentthe
benefit of the doubt whenever I encountered a vague or ambiguous statement later on.
Thisseemedreasonable.Surelyastudentwhohaddonesowellonthefirstessaywould
notmakeafoolishmistakeinthesecondone!Buttherewasaseriousproblemwithmy
wayofdoingthings.Ifastudenthadwrittentwoessays,onestrongandoneweak,Iwould
endup withdifferentfinal gradesdepending onwhich essayI readfirst. I hadtold the
studentsthatthetwoessayshadequalweight,butthatwasnottrue:thefirstonehada
muchgreaterimpactonthefinalgradethanthesecond.Thiswasunacceptable.
Iadoptedanewprocedure.Insteadof reading the booklets insequence,Ireadand
scoredallthestudents’answerstothefirstquestion,thenwentontothenextone.Imade
suretowriteallthescoresontheinsidebackpageofthebookletsothatIwouldnotbe
biased(evenunconsciously)whenIreadthesecondessay.Soonafterswitchingtothenew
method,Imadeadisconcertingobservation:myconfidenceinmygradingwasnowmuch
lowerthanithadbeen.ThereasonwasthatIfrequentlyexperiencedadiscomfortthatwas
newtome.WhenIwasdisappointedwithastudent’ssecondessayandwenttotheback
pageofthebooklettoenterapoorgrade,IoccasionallydiscoveredthatIhadgivenatop
grade to the same student’s first essay. I also noticed that I was tempted to reduce the
discrepancybychangingthegradethatIhadnotyetwrittendown,andfoundithardto
followthesimpleruleofneveryieldingtothattemptation.Mygradesfortheessaysofa
single student often varied over a considerable range. The lack of coherence left me
uncertainandfrustrated.
IwasnowlesshappywithandlessconfidentinmygradesthanIhadbeenearlier,but
Irecognizedthatthassconfthiswasagoodsign,anindicationthatthenewprocedurewas
superior. The consistency I had enjoyed earlier was spurious; it produced a feeling of
cognitiveease,andmySystem2washappytolazilyacceptthefinalgrade.Byallowing
myself to be strongly influenced by the first question in evaluating subsequent ones, I
spared myself the dissonance of finding the same student doing very well on some
questionsandbadlyonothers.TheuncomfortableinconsistencythatwasrevealedwhenI
switched to the new procedure was real: it reflected both the inadequacy of any single
questionasameasureofwhatthestudentknewandtheunreliabilityofmyowngrading.
The procedure I adopted to tame the halo effect conforms to a general principle:
decorrelateerror!Tounderstandhowthisprincipleworks,imaginethatalargenumberof
observers are shown glass jars containing pennies and are challenged to estimate the
number of pennies in each jar. As James Surowiecki explained in his best-selling The
WisdomofCrowds,thisisthekindoftaskinwhichindividualsdoverypoorly,butpools
of individual judgments do remarkably well. Some individuals greatly overestimate the
truenumber,othersunderestimateit,butwhenmanyjudgmentsareaveraged,theaverage
tendstobequiteaccurate.Themechanismisstraightforward:allindividualslookatthe
samejar,andalltheirjudgmentshaveacommonbasis.Ontheotherhand,theerrorsthat
individualsmakeareindependentoftheerrorsmadebyothers,and(intheabsenceofa
systematicbias)theytendtoaveragetozero.However,themagicoferrorreductionworks
well only when the observations are independent and their errors uncorrelated. If the
observers share a bias, the aggregation of judgments will not reduce it. Allowing the
observerstoinfluenceeachothereffectivelyreducesthesizeofthesample,andwithitthe
precisionofthegroupestimate.
Toderivethemostusefulinformationfrommultiplesourcesofevidence,youshould
always try to make these sources independent of each other. This rule is part of good
policeprocedure.Whentherearemultiplewitnessestoanevent,theyarenotallowedto
discuss it before giving their testimony. The goal is not only to prevent collusion by
hostile witnesses, it is also to prevent unbiased witnesses from influencing each other.
Witnesses who exchange their experiences will tend to make similar errors in their
testimony, reducing the total value of the information they provide. Eliminating
redundancyfromyoursourcesofinformationisalwaysagoodidea.
The principle of independent judgments (and decorrelated errors) has immediate
applicationsfortheconductofmeetings,anactivityinwhichexecutivesinorganizations
spend a great deal of their working days. A simple rule can help: before an issue is
discussed,allmembersofthecommitteeshouldbeaskedtowriteaverybriefsummaryof
theirposition.Thisproceduremakesgooduseofthevalueofthediversityofknowledge
andopinioninthegroup.Thestandardpracticeofopendiscussiongivestoomuchweight
totheopinionsofthosewhospeakearlyandassertively,causingotherstolineupbehind
them.
WhatYouSeeisAllThereis(Wysiati)
One of my favorite memories of the early years of working with Amos is a comedy
routineheenjoyedperforming.Inaperfectimpersonationofoneoftheprofessorswith
whom he had studied philosophy as an undergraduate, Amos would growl in Hebrew
markedby athick Germanaccent: “Youmust neverforgetthe Primat of the Is.”What
exactly his teacher had meant by that phrase never became clear to me (or to Amos, I
believe),butAmos’sjokesalwaysmaht=cipdeapoint.Hewasremindedoftheoldphrase
(andeventuallyIwastoo)wheneverweencounteredtheremarkableasymmetrybetween
thewaysourmindtreatsinformationthatiscurrentlyavailableandinformationwedonot
have.
An essential design feature of the associative machine is that it represents only
activatedideas.Informationthatisnotretrieved(evenunconsciously)frommemorymight
aswellnotexist.System1excelsatconstructingthebestpossiblestorythatincorporates
ideascurrentlyactivated,butitdoesnot(cannot)allowforinformationitdoesnothave.
The measure of success for System 1 is the coherence of the story it manages to
create. The amount and quality of the data on which the story is based are largely
irrelevant.Wheninformationisscarce,whichisacommonoccurrence,System1operates
asamachineforjumpingtoconclusions.Considerthefollowing:“WillMindikbeagood
leader?Sheisintelligentandstrong…”Ananswerquicklycametoyourmind,anditwas
yes.Youpickedthebestanswerbasedontheverylimitedinformationavailable,butyou
jumpedthegun.Whatifthenexttwoadjectiveswerecorruptandcruel?
TakenoteofwhatyoudidnotdoasyoubrieflythoughtofMindikasaleader.You
didnotstartbyasking,“WhatwouldIneedtoknowbeforeIformedanopinionaboutthe
quality of someone’s leadership?” System 1 got to work on its own from the first
adjective:intelligentisgood,intelligentandstrongisverygood.Thisisthebeststorythat
can be constructed from two adjectives, and System 1 delivered it with great cognitive
ease.Thestorywillberevisedifnewinformationcomesin(suchasMindikiscorrupt),
but there is no waiting and no subjective discomfort. And there also remains a bias
favoringthefirstimpression.
Thecombinationofacoherence-seekingSystem1withalazySystem2impliesthat
System 2 will endorse many intuitive beliefs, which closely reflect the impressions
generated by System 1. Of course, System 2 also is capable of a more systematic and
carefulapproachtoevidence,andoffollowingalistofboxesthatmustbecheckedbefore
makingadecision—thinkofbuyingahome,whenyoudeliberatelyseekinformationthat
you don’t have. However, System 1 is expected to influence even the more careful
decisions.Itsinputneverceases.
Jumping to conclusions on the basis of limited evidence is so important to an
understandingofintuitivethinking,andcomesupsoofteninthisbook,thatIwillusea
cumbersomeabbreviationforit:WYSIATI,whichstandsforwhatyouseeisallthereis.
System1is radically insensitivetoboththe qualityandthequantity of theinformation
thatgivesrisetoimpressionsandintuitions.
Amos, with two of his graduate students at Stanford, reported a study that bears
directly on WYSIATI, by observing the reaction of people who are given one-sided
evidence and know it. The participants were exposed to legal scenarios such as the
following:
On September 3, plaintiff David Thornton, a forty-three-year-old union field
representative,waspresentinThriftyDrugStore#168,performingaroutineunion
visit.Withintenminutesofhisarrival,astoremanagerconfrontedhimandtoldhim
hecouldnolongerspeakwiththeunionemployeesonthefloorofthestore.Instead,
hewouldhavetoseetheminabackroomwhiletheywereonbreak.Sucharequest
is allowed by the union contract with Thrifty Drug but had never before been
enforced.WhenMr.Thorntonobjected,hewastoldthathehadthechoiceofconto
roomwhilformingtotheserequirements,leavingthestore,orbeingarrested.Atthis
point, Mr. Thornton indicated to the manager that he had always been allowed to
speaktoemployeesonthefloorforasmuchastenminutes,aslongasnobusiness
wasdisrupted,andthathewouldratherbearrestedthanchangetheprocedureofhis
routinevisit.ThemanagerthencalledthepoliceandhadMr.Thorntonhandcuffedin
thestorefortrespassing.Afterhewasbookedandputintoaholdingcellforabrief
time,allchargesweredropped.Mr.ThorntonissuingThriftyDrugforfalsearrest.
Inadditiontothisbackgroundmaterial,whichallparticipantsread,differentgroupswere
exposedtopresentationsbythelawyersforthetwoparties.Naturally,thelawyerforthe
unionorganizerdescribedthearrestasanintimidationattempt,whilethelawyerforthe
store argued that having the talk in the store was disruptive and that the manager was
acting properly. Some participants, like a jury, heard both sides. The lawyers added no
usefulinformationthatyoucouldnotinferfromthebackgroundstory.
The participants were fully aware of the setup, and those who heard only one side
couldeasilyhavegeneratedtheargumentfortheotherside.Nevertheless,thepresentation
of one-sided evidence had a very pronounced effect on judgments. Furthermore,
participants who saw one-sided evidence were more confident of their judgments than
thosewhosawbothsides.Thisisjustwhatyouwouldexpectiftheconfidencethatpeople
experience is determined by the coherence of the story they manage to construct from
availableinformation.Itistheconsistencyoftheinformationthatmattersforagoodstory,
notitscompleteness.Indeed,youwilloftenfindthatknowinglittlemakesiteasiertofit
everythingyouknowintoacoherentpattern.
WY SIATI facilitates the achievement of coherence and of the cognitive ease that
causesustoacceptastatementastrue.Itexplainswhywecanthinkfast,andhowweare
able to make sense of partial information in a complex world. Much of the time, the
coherent story we put together is close enough to reality to support reasonable action.
However,IwillalsoinvokeWYSIATItohelpexplainalonganddiverselistofbiasesof
judgmentandchoice,includingthefollowingamongmanyothers:
Overconfidence:AstheWYSIATIruleimplies,neitherthequantitynorthequality
of the evidence counts for much in subjective confidence. The confidence that
individualshaveintheirbeliefsdependsmostlyonthequalityofthestorytheycan
tell about what they see, even if they see little. We often fail to allow for the
possibilitythatevidencethatshouldbecriticaltoourjudgmentismissing—whatwe
seeisallthereis.Furthermore,ourassociativesystemtendstosettleonacoherent
patternofactivationandsuppressesdoubtandambiguity.
Framing effects: Different ways of presenting the same information often evoke
differentemotions.Thestatementthat“theoddsofsurvivalonemonthaftersurgery
are90%”ismorereassuringthantheequivalentstatementthat“mortalitywithinone
monthofsurgeryis10%.”Similarly,coldcutsdescribedas“90%fat-free”aremore
attractive than when they are described as “10% fat.” The equivalence of the
alternative formulations is transparent, but an individual normally sees only one
formulation,andwhatsheseesisallthereis.
Base-rateneglect:RecallSteve,themeekandtidysoulwhoisoftenbelievedtobea
librarian. The personality description is salient and vivid, and although you surely
knowthattherearemoremalefarmmu
Base-rersthanmalelibrarians, that statisticalfactalmostcertainlydid not cometo
yourmindwhenyoufirstconsideredthequestion.Whatyousawwasalltherewas.
SpeakingofJumpingtoConclusions
“Sheknowsnothingaboutthisperson’smanagementskills.Allsheisgoingbyisthe
haloeffectfromagoodpresentation.”
“Let’s decorrelate errors by obtaining separate judgments on the issue before any
discussion.Wewillgetmoreinformationfromindependentassessments.”
“They made that big decision on the basis of a good report from one consultant.
WYSIATI—what you see is all there is. They did not seem to realize how little
informationtheyhad.”
“Theydidn’twantmoreinformationthatmightspoiltheirstory.WYSIATI.”
P
HowJudgmentsHappen
Thereisnolimittothenumberofquestionsyoucananswer,whethertheyarequestions
someone else asks or questions you ask yourself. Nor is there a limit to the number of
attributesyoucanevaluate.Youarecapableofcountingthenumberofcapitalletterson
thispage,comparingtheheightofthewindowsofyourhousetotheoneacrossthestreet,
and assessing the political prospects of your senator on a scale from excellent to
disastrous.ThequestionsareaddressedtoSystem2,whichwilldirectattentionandsearch
memorytofindtheanswers.System2receivesquestionsorgeneratesthem:ineithercase
it directs attention and searches memory to find the answers. System 1 operates
differently. It continuously monitors what is going on outside and inside the mind, and
continuously generates assessments of various aspects of the situation without specific
intentionand with littleor noeffort.Thesebasicassessments play an important role in
intuitivejudgment,becausetheyareeasilysubstitutedformoredifficultquestions—thisis
theessentialideaoftheheuristicsandbiasesapproach.TwootherfeaturesofSystem1
alsosupportthesubstitutionofonejudgmentforanother.One is theabilitytotranslate
values across dimensions, which you do in answering a question that most people find
easy:“IfSamwereastallasheisintelligent,howtallwouldhebe?”Finally,thereisthe
mental shotgun. An intention of System 2 to answer a specific question or evaluate a
particular attribute of the situation automatically triggers other computations, including
basicassessments.
BasicAssessments
System1hasbeenshapedbyevolutiontoprovideacontinuousassessmentofthemain
problemsthatanorganismmustsolvetosurvive:Howarethingsgoing?Isthereathreat
oramajoropportunity?Iseverythingnormal?ShouldIapproachoravoid?Thequestions
are perhaps less urgent for a human in a city environment than for a gazelle on the
savannah,aalencande:How,butwehaveinheritedtheneuralmechanismsthatevolved
to provide ongoing assessments of threat level, and they have not been turned off.
Situations are constantly evaluated as good or bad, requiring escape or permitting
approach. Good mood and cognitive ease are the human equivalents of assessments of
safetyandfamiliarity.
For a specific example of a basic assessment, consider the ability to discriminate
friendfromfoeataglance.Thiscontributestoone’schancesofsurvivalinadangerous
world,andsuchaspecializedcapabilityhasindeedevolved.AlexTodorov,mycolleague
atPrinceton,hasexploredthebiologicalrootsoftherapidjudgmentsofhowsafeitisto
interactwithastranger.Heshowedthatweareendowedwithanabilitytoevaluate,ina
single glance at a strangers face, two potentially crucial facts about that person: how
dominant(andthereforepotentiallythreatening)heis,andhowtrustworthyheis,whether
hisintentionsaremorelikelytobefriendlyorhostile.Theshapeofthefaceprovidesthe
cuesforassessingdominance:a“strong”squarechinisonesuchcue.Facialexpression
(smileorfrown)providesthecuesforassessingthestrangersintentions.Thecombination
of a square chin with a turned-down mouth may spell trouble. The accuracy of face
reading is far from perfect: round chins are not a reliable indicator of meekness, and
smilescan(tosomeextent)befaked.Still,evenanimperfectabilitytoassessstrangers
confersasurvivaladvantage.
This ancient mechanism is put to a novel use in the modern world: it has some
influence on how people vote. Todorov showed his students pictures of men’s faces,
sometimes for as little as one-tenth of a second, and asked them to rate the faces on
various attributes, including likability and competence. Observers agreed quite well on
those ratings. The faces that Todorov showed were not a random set: they were the
campaignportraitsofpoliticianscompetingforelectiveoffice.Todorovthencomparedthe
results of the electoral races to the ratings of competence that Princeton students had
made,basedonbriefexposuretophotographsandwithoutanypoliticalcontext.Inabout
70% of the races for senator, congressman, and governor, the election winner was the
candidatewhosefacehadearnedahigherratingofcompetence.Thisstrikingresultwas
quicklyconfirmedinnationalelectionsinFinland,inzoningboardelectionsinEngland,
andinvariouselectoralcontestsinAustralia,Germany,andMexico.Surprisingly(atleast
tome),ratingsofcompetencewerefarmorepredictiveofvotingoutcomesinTodorov’s
studythanratingsoflikability.
Todorovhasfoundthatpeoplejudgecompetencebycombiningthetwodimensions
ofstrengthandtrustworthiness.Thefacesthatexudecompetencecombineastrongchin
with a slight confident-appearing smile. There is no evidence that these facial features
actually predict how well politicians will perform in office. But studies of the brain’s
responsetowinningandlosingcandidatesshow thatwearebiologicallypredisposedto
reject candidates who lack the attributes we value—in this research, losers evoked
strongerindicationsof(negative)emotionalresponse.ThisisanexampleofwhatIwill
call a judgment heuristic in the following chapters. Voters are attempting to form an
impression of how good a candidate will be in office, and they fall back on a simpler
assessmentthatismadequicklyandautomaticallyandisavailablewhenSystem2must
makeitsdecision.
PoliticalscientistsfolloweduponTodorov’sinitialresearchbyidentifyingacategory
ofvotersforwhomtheautomaticpreferencesofSystem1areparticularlylikelytoplaya
large role. They found what they were looking for among politicalr m=“5%”>Todoly
uninformedvoterswhowatchagreatdealoftelevision.Asexpected,theeffectoffacial
competence on voting is about three times larger for information-poor and TV-prone
votersthan forothers whoare betterinformed and watch less television. Evidently, the
relative importance of System 1 in determining voting choices is not the same for all
people.Wewillencounterotherexamplesofsuchindividualdifferences.
System1understands language,ofcourse, andunderstandingdepends onthebasic
assessments that are routinely carried out as part of the perception of events and the
comprehension of messages. These assessments include computations of similarity and
representativeness, attributions of causality, and evaluations of the availability of
associationsandexemplars.Theyareperformedevenintheabsenceofaspecifictaskset,
althoughtheresultsareusedtomeettaskdemandsastheyarise.
Thelistofbasicassessmentsislong,butnoteverypossibleattributeisassessed.For
anexample,lookbrieflyatfigure7.
A glance provides an immediate impression of many features of the display. You
knowthatthetwotowersareequallytallandthattheyaremoresimilartoeachotherthan
the tower on the left is to the array of blocks in the middle. However, you do not
immediately know that the number of blocks in the left-hand tower is the same as the
numberofblocksarrayedonthefloor,andyouhavenoimpressionoftheheightofthe
tower that you could build from them. To confirm that the numbers are the same, you
wouldneedtocountthetwosetsofblocksandcomparetheresults,anactivitythatonly
System2cancarryout.
Figure7
SetsandPrototypes
For another example, consider the question: What is the average length of the lines in
figure8?
Figure8
ThisquestioniseasyandSystem1answersitwithoutprompting.Experimentshave
shownthatafractionofasecondissufficientforpeopletoregistertheaveragelengthof
an array of lines with considerable precision. Furthermore, the accuracy of these
judgments is not impaired when the observer is cognitively busy with a memory task.
Theydonotnecessarilyknowhowtodescribetheaverageininchesorcentimeters,but
they will be very accurate in adjusting the length of another line to match the average.
System2isnotneededtoformanimpressionofthenormoflengthforanarray.System1
doesit,automaticallyandeffortlessly,justasitregistersthecolorofthelinesandthefact
thatthey arenot parallel.We also can form an immediateimpressionof thenumber of
objectsinanarray—preciselyiftherearefourorfewerobjects,crudelyiftherearemore.
Nowtoanotherquestion:Whatisthetotallengthofthelinesinfigure8?Thisisa
differentexperience,becauseSystem1hasnosuggestionstooffer.Theonlywayyoucan
answer this question is by activating System 2, which will laboriously estimate the
average,estimateorcountthelines,andmultiplyaveragelengthbythenumberoflines.
estimaight=“0%”>
ThefailureofSystem1tocomputethetotallengthofasetoflinesataglancemay
look obvious to you; you never thought you could do it. It is in fact an instance of an
importantlimitationofthatsystem.BecauseSystem1representscategoriesbyaprototype
orasetoftypicalexemplars,itdealswellwithaveragesbutpoorlywithsums.Thesizeof
thecategory,thenumberofinstancesitcontains,tendstobeignoredinjudgmentsofwhat
Iwillcallsum-likevariables.
Participantsinoneofthenumerousexperimentsthatwerepromptedbythelitigation
followingthedisastrousExxonValdezoilspillwereaskedtheirwillingnesstopayfornets
tocoveroilpondsinwhichmigratorybirdsoftendrown.Differentgroupsofparticipants
statedtheirwillingnesstopaytosave2,000,20,000,or200,000birds.Ifsavingbirdsisan
economic good it should be a sum-like variable: saving 200,000 birds should be worth
muchmorethansaving2,000birds.Infact,theaveragecontributionsofthethreegroups
were $80, $78, and $88 respectively. The number of birds made very little difference.
Whattheparticipantsreactedto,inallthreegroups,wasaprototype—theawfulimageof
ahelplessbirddrowning,itsfeatherssoakedinthickoil.Thealmostcompleteneglectof
quantityinsuchemotionalcontextshasbeenconfirmedmanytimes.
IntensityMatching
Questions about your happiness, the president’s popularity, the proper punishment of
financial evildoers, and the future prospects of a politician share an important
characteristic: they all refer to an underlying dimension of intensity or amount, which
permits the use of the word more: more happy, more popular, more severe, or more
powerful(forapolitician).Forexample,acandidate’spoliticalfuturecanrangefromthe
lowof“Shewillbedefeatedintheprimary”toahighof“Shewillsomedaybepresident
oftheUnitedStates.”
Here we encounter a new aptitude of System 1. An underlying scale of intensity
allows matching across diverse dimensions. If crimes were colors, murder would be a
deepershadeofredthantheft.Ifcrimeswereexpressedasmusic,massmurderwouldbe
playedfortissimowhileaccumulatingunpaidparkingticketswouldbeafaintpianissimo.
And of course you have similar feelings about the intensity of punishments. In classic
experiments, people adjusted the loudness of a sound to the severity of crimes; other
peopleadjustedloudnesstotheseverityoflegalpunishments.Ifyouheardtwonotes,one
forthecrimeandoneforthepunishment,youwouldfeelasenseofinjusticeifonetone
wasmuchlouderthantheother.
Consideranexamplethatwewillencounteragainlater:
Juliereadfluentlywhenshewasfouryearsold.
NowmatchJulie’sreadingprowessasachildtothefollowingintensityscales:
HowtallisamanwhoisastallasJuliewasprecocious?
Whatdoyouthinkof6feet?Obviouslytoolittle.Whatabout7feet?Probablytoomuch.
Youarelookingforaheightthatisasremarkableastheachievementofreadingatage
four. Fairly remarkable, but not extraordinary. Reading at fifteen months would be
extraordinary,perhapslikeamanwhois7′8″.
WhatlevelofincomeinyourprofessionmatchesJulie’sreadingachievement?
WhichcrimeisassevereasJuliewasprecocious?
WhichgraduatingGPAinanIvyLeaguecollegematchesJulie’sreading?
Notveryhard,wasit?Furthermore,youcanbeassuredthatyourmatcheswillbequite
closetothoseofotherpeopleinyourculturalmilieu.Wewillseethatwhenpeopleare
askedtopredictJulie’sGPAfromtheinformationabouttheageatwhichshelearnedto
read,theyanswerbytranslatingfromonescaleto another and pickthematchingGPA.
Andwe willalso see whythis modeof predictionby matching isstatistically wrong—
althoughitisperfectlynaturaltoSystem1,andformostpeopleexceptstatisticiansitis
alsoacceptabletoSystem2.
TheMentalShotgun
System 1 carries out many computations at any one time. Some of these are routine
assessmentsthatgooncontinuously.Wheneveryoureyesareopen,yourbraincomputesa
three-dimensional representation of what is in your field of vision, complete with the
shape of objects, their position in space, and their identity. No intention is needed to
triggerthisoperationorthecontinuousmonitoringforviolatedexpectations.Incontrastto
theseroutineassessments,othercomputationsareundertakenonlywhenneeded:youdo
notmaintainacontinuousevaluationofhowhappyorwealthyyouare,andevenifyou
are a political addict you do not continuously assess the president’s prospects. The
occasionaljudgmentsarevoluntary.Theyoccuronlywhenyouintendthemtodoso.
Youdonotautomaticallycountthenumberofsyllablesofeverywordyouread,but
youcandoit if yousochoose. However, the controloverintendedcomputationsis far
from precise: we often compute much more than we want or need. I call this excess
computationthementalshotgun.Itisimpossibletoaimatasinglepointwithashotgun
becauseitshootspelletsthatscatter,anditseemsalmostequallydifficultforSystem1not
todomorethanSystem2chargesittodo.TwoexperimentsthatIreadlongagosuggested
thisimage.
Participantsinoneexperimentlistenedtopairsofwords,withtheinstructiontopress
akeyas quicklyaspossiblewhenevertheydetectedthatthewordsrhymed.Thewords
rhymeinboththesepairs:
VOTE—NOTE
VOTE—GOAT
Thedifferenceisobvioustoyoubecauseyouseethetwopairs.VOTEandGOATrhyme,
buttheyarespelleddifferently.Theparticipantsonlyheardthewords,buttheywerealso
influencedbythespelling.Theyweredistinctlyslowertorecognizethewordsasrhyming
iftheirspellingwasdiscrepant.Althoughtheinstructionsrequiredonlyacomparisonof
sounds,theparticipantsalsocomparedtheirspelling,andthemismatchontheirrelevant
dimensionslowedthemdown.Anintentiontoansweronequestionevokedanother,which
wasnotonlysuperfluousbutactuallydetrimentaltothemaintask.
Inanotherstudy,peoplelistenedtoaseriesofsentences,withtheinstructiontopress
onekeyasquicklyaspost=“llydesibletoindicateifthesentencewasliterallytrue,and
anotherkeyifthesentencewasnotliterallytrue.Whatarethecorrectresponsesforthe
followingsentences?
Someroadsaresnakes.
Somejobsaresnakes.
Somejobsarejails.
All three sentences are literally false. However, you probably noticed that the second
sentenceismoreobviouslyfalsethantheothertwo—thereactiontimescollectedinthe
experimentconfirmedasubstantialdifference.Thereasonforthedifferenceisthatthetwo
difficult sentences can be metaphorically true. Here again, the intention to perform one
computationevokedanother.Andhereagain,thecorrectanswerprevailedintheconflict,
buttheconflictwiththeirrelevantanswerdisruptedperformance.Inthenextchapterwe
willseethatthecombinationofamentalshotgunwithintensitymatchingexplainswhy
wehaveintuitivejudgmentsaboutmanythingsthatweknowlittleabout.
SpeakingofJudgment
“Evaluating people as attractive or not is a basic assessment. You do that
automaticallywhetherornotyouwantto,anditinfluencesyou.”
“Therearecircuitsinthebrainthatevaluatedominancefromtheshapeoftheface.
Helooksthepartforaleadershiprole.”
“Thepunishmentwon’tfeeljustunlessitsintensitymatchesthecrime.Justlikeyou
canmatchtheloudnessofasoundtothebrightnessofalight.”
“Thiswasaclearinstanceofamentalshotgun.Hewasaskedwhetherhethoughtthe
companywasfinanciallysound,buthecouldn’tforgetthathelikestheirproduct.”
P
AnsweringanEasierQuestion
A remarkable aspect of your mental life is that you are rarely stumped. True, you
occasionallyfaceaquestionsuchas17×24=?towhichnoanswercomesimmediately
tomind,butthesedumbfoundedmomentsarerare.Thenormalstateofyourmindisthat
you have intuitive feelings and opinions about almost everything that comes your way.
Youlikeordislikepeoplelongbeforeyouknowmuchaboutthem;youtrustordistrust
strangerswithoutknowingwhy;youfeelthatanenterpriseisboundtosucceedwithout
analyzingit.Whetheryoustatethemornot,youoftenhaveanswerstoquestionsthatyou
do not completely understand, relying on evidence that you can neither explain nor
defend.
SubstitutingQuestions
Iproposeasimpleaccountofhowwegenerateintuitiveopinionsoncomplexmatters.Ifa
satisfactoryanswertoahardquestionisebrquesDnotfoundquickly,System1willfinda
related question that is easier and will answer it. I call theoperation of answering one
questioninplaceofanothersubstitution.Ialsoadoptthefollowingterms:
Thetargetquestionistheassessmentyouintendtoproduce.
Theheuristicquestionisthesimplerquestionthatyouanswerinstead.
Thetechnicaldefinitionofheuristicisasimpleprocedurethathelpsfindadequate,though
often imperfect, answers to difficult questions. The word comes from the same root as
eureka.
TheideaofsubstitutioncameupearlyinmyworkwithAmos,anditwasthecoreof
whatbecametheheuristicsandbiasesapproach.Weaskedourselveshowpeoplemanage
to make judgments of probability without knowing precisely what probability is. We
concludedthatpeoplemustsomehowsimplifythatimpossibletask,andwesetouttofind
how they do it. Our answer was that when called upon to judge probability, people
actuallyjudge something elseand believethey have judged probability.System 1often
makesthismovewhenfacedwithdifficulttargetquestions,iftheanswertoarelatedand
easierheuristicquestioncomesreadilytomind.
Substituting one question for another can be a good strategy for solving difficult
problems,andGeorgePólyaincludedsubstitutioninhisclassicHowtoSolveIt:“Ifyou
can’t solve a problem, then there is an easier problem you can solve: find it.” Pólya’s
heuristicsarestrategicproceduresthataredeliberatelyimplementedbySystem2.Butthe
heuristics that I discuss in this chapter are not chosen; they are a consequence of the
mentalshotgun,theimprecisecontrolwehaveovertargetingourresponsestoquestions.
Considerthequestionslistedinthe left-hand columnoftable1.Theseare difficult
questions,andbeforeyoucanproduceareasonedanswertoanyofthemyoumustdeal
withotherdifficultissues.Whatisthemeaningofhappiness?Whatarethelikelypolitical
developmentsinthenextsixmonths?Whatarethestandardsentencesforotherfinancial
crimes?Howstrongisthecompetitionthatthecandidatefaces?Whatotherenvironmental
or other causes should be considered? Dealing with these questions seriously is
completely impractical. But you are not limited to perfectly reasoned answers to
questions. There is a heuristic alternative to careful reasoning, which sometimes works
fairlywellandsometimesleadstoseriouserrors.
TargetQuestion HeuristicQuestion
Howmuchwouldyoucontributetosavean
endangeredspecies?
HowmuchemotiondoIfeelwhenI
thinkofdyingdolphins?
Howhappyareyouwithyourlifethese
days? Whatismymoodrightnow?
Howpopularisthepresidentrightnow? Howpopularwillthepresidentbesix
monthsfromnow?
Howshouldfinancialadviserswhopreyonthe
elderlybepunished?
HowmuchangerdoIfeelwhenIthink
offinancialpredators?
Thiswomanisrunningfortheprimary.How
farwillshegoinpolitics?
Doesthiswomanlooklikeapolitical
winner?
Table1
The mental shotgun makes it easy to generate quick answers to difficult questions
withoutimposingmuchhardworkonyourlazySystem2.Theright-handcounterpartof
eachoftheleft-handquestionsisverylikelytobeevokedandveryeasilyanswered.Your
feelingsaboutdolphinsandfinancialcrooks,yourcurrentmood,yourimpressionsofthe
politicalskilloftheprimarycandidate,orthecurrentstandingofthepresidentwillreadily
come to mind. The heuristic questions provide an off-the-shelf answer to each of the
difficulttargetquestions.
Somethingisstillmissingfromthisstory:theanswersneedtobefittedtotheoriginal
questions.Forexample,myfeelingsaboutdyingdolphinsmustbeexpressedindollars.
Another capability of System 1, intensity matching, is available to solve that problem.
Recallthatbothfeelingsandcontributiondollarsareintensityscales.Icanfeelmoreor
lessstronglyaboutdolphinsandthereisacontributionthatmatchestheintensityofmy
feelings.Thedollaramountthatwillcometomymindisthematchingamount.Similar
intensitymatchesarepossibleforallthequestions.Forexample,thepoliticalskillsofa
candidatecanrangefrompathetictoextraordinarilyimpressive,andthescaleofpolitical
successcanrangefromthelowof“Shewillbedefeatedintheprimary”toahighof“She
willsomedaybepresidentoftheUnitedStates.”
The automatic processes of the mental shotgun and intensity matching often make
available one or more answers to easy questions that could be mapped onto the target
question. On some occasions, substitution will occur and a heuristic answer will be
endorsed by System 2. Of course, System 2 has the opportunity to reject this intuitive
answer, or to modify it by incorporating other information. However, a lazy System 2
often follows the path of least effort and endorses a heuristic answer without much
scrutinyofwhetheritistrulyappropriate.Youwillnotbestumped,youwillnothaveto
workveryherрwheard,andyoumaynotevennoticethatyoudidnotanswerthequestion
youwereasked.Furthermore,youmaynotrealizethatthetargetquestionwasdifficult,
becauseanintuitiveanswertoitcamereadilytomind.
The3-DHeuristic
Havealookatthepictureofthethreemenandanswerthequestionthatfollows.
Figure9
Asprintedonthepage,isthefigureontherightlargerthanthefigureontheleft?
Theobviousanswercomesquicklytomind:thefigureontherightislarger.Ifyou
take a ruler to the two figures, however, you will discover that in fact the figures are
exactlythesamesize.Yourimpressionoftheirrelativesizeisdominatedbyapowerful
illusion,whichneatlyillustratestheprocessofsubstitution.
Thecorridorinwhichthefiguresareseenisdrawninperspectiveandappearstogo
into the depth plane. Your perceptual system automatically interprets the picture as a
three-dimensional scene, not as an image printed on a flat paper surface. In the 3-D
interpretation,thepersonontherightisbothmuchfartherawayandmuchlargerthanthe
person on the left. For most of us, this impression of 3-D size is overwhelming. Only
visual artists and experienced photographers have developed the skill of seeing the
drawing as an object on the page. For the rest of us, substitution occurs: the dominant
impression of 3-D size dictates the judgment of 2-D size. The illusion is due to a 3-D
heuristic.
What happens here is a true illusion, not a misunderstanding of the question. You
knewthatthequestionwasaboutthesizeofthefiguresinthepicture,asprintedonthe
page.Ifyouhadbeenaskedtoestimatethesizeofthefigures,weknowfromexperiments
thatyouranswerwouldhavebeenininches,notfeet.Youwerenotconfusedaboutthe
question,butyouwereinfluencedbytheanswertoaquestionthatyouwerenotasked:
“Howtallarethethreepeople?”
The essential step in the heuristic—the substitution of three-dimensional for two-
dimensional size—occurred automatically. The picture contains cues that suggest a 3-D
interpretation.Thesecuesareirrelevanttothetaskathand—thejudgmentofsizeofthe
figure on the page—and you should have ignored them, but you could not. The bias
associatedwiththeheuristicisthatobjectsthatappeartobemoredistantalsoappeartobe
largeron thepage. As thisexample illustrates,a judgment thatis basedon substitution
will inevitably be biased in predictable ways. In this case, it happens so deep in the
perceptualsystemthatyousimplycannothelpit.
TheMoodHeuristicforHappiness
AsurveyofGermanstudentsisoneofthebestexamplesofsubstitution.Thesurveythat
theyoungparticipantscompletedincludedthefollowingtwoquestions:
Howhappyareyouthesedays?
Howmanydatesdidyouhavelastmonth?
< stрr to a p height=“0%” width=“0%”>The experimenters were interested in the
correlation between the two answers. Would the students who reported many dates say
that they were happier than those with fewer dates? Surprisingly, no: the correlation
between the answers was about zero. Evidently, dating was not what came first to the
students’mindswhentheywereaskedtoassesstheirhappiness.Anothergroupofstudents
sawthesametwoquestions,butinreverseorder:
Howmanydatesdidyouhavelastmonth?
Howhappyareyouthesedays?
Theresultsthistimewerecompletelydifferent.Inthissequence,thecorrelationbetween
the number of dates and reported happiness was about as high as correlations between
psychologicalmeasurescanget.Whathappened?
Theexplanationisstraightforward,anditisagoodexampleofsubstitution.Dating
was apparently not the center of these students’ life (in the first survey, happiness and
datingwere uncorrelated),but whenthey wereasked tothink abouttheir romanticlife,
theycertainlyhadanemotionalreaction.Thestudentswhohadmanydateswerereminded
ofahappyaspectoftheirlife,whilethosewhohadnonewereremindedoflonelinessand
rejection.Theemotionarousedbythedatingquestionwasstilloneveryone’smindwhen
thequeryaboutgeneralhappinesscameup.
The psychology of what happened is precisely analogous to the psychology of the
sizeillusioninfigure9.“Happinessthesedays”isnotanaturaloraneasyassessment.A
goodanswerrequiresafairamountofthinking.However,thestudentswhohadjustbeen
askedabouttheirdatingdidnotneedtothinkhardbecausetheyalreadyhadintheirmind
ananswertoarelatedquestion:howhappytheywerewiththeirlovelife.Theysubstituted
thequestiontowhichtheyhadareadymadeanswerforthequestiontheywereasked.
Hereagain,aswedidfortheillusion,wecanask:Arethestudentsconfused?Dothey
reallythinkthatthetwoquestions—theonetheywereaskedandtheonetheyanswer—are
synonymous? Of course not. The students do not temporarily lose their ability to
distinguishromanticlifefromlifeasawhole.Ifaskedaboutthetwoconcepts,theywould
saytheyaredifferent.Buttheywerenotaskedwhethertheconceptsaredifferent.They
wereaskedhowhappytheywere,andSystem1hasareadyanswer.
Dating is not unique. The same pattern is found if a question about the students’
relations with their parents or about their finances immediately precedes the question
about general happiness. In both cases, satisfaction in the particular domain dominates
happinessreports.Anyemotionallysignificantquestionthataltersaperson’smoodwill
havethesameeffect.WYSIATI.Thepresentstateofmindloomsverylargewhenpeople
evaluatetheirhappiness.
TheAffectHeuristic
The dominance of conclusions over arguments is most pronounced where emotions are
involved.ThepsychologistPaulSlovichasproposedanaffectheuristicinwhichpeople
let their likes and dislikes determine their beliefs about the world. Your political
preference determines the arguments that you find compelling. If you like the current
healthpolicy,youbelieveitsbenefitsaresubstantialanditscostsmoremanageablethan
the costs of alternatives. If you are a hawk in your attitude toward other nations, you
probabltheр“0%y think they are relatively weak and likely to submit to your country’s
will.Ifyouareadove,youprobablythinktheyarestrongandwillnotbeeasilycoerced.
Youremotionalattitudetosuchthingsasirradiatedfood,redmeat,nuclearpower,tattoos,
ormotorcyclesdrivesyourbeliefsabouttheirbenefitsandtheirrisks.Ifyoudislikeanyof
thesethings,youprobablybelievethatitsrisksarehighanditsbenefitsnegligible.
Theprimacyofconclusionsdoesnotmeanthatyourmindiscompletelyclosedand
thatyouropinionsarewhollyimmunetoinformationandsensiblereasoning.Yourbeliefs,
andevenyouremotionalattitude,maychange(atleastalittle)whenyoulearnthattherisk
ofanactivityyoudislikedissmallerthanyouthought.However,theinformationabout
lowerriskswillalsochangeyourviewofthebenefits(forthebetter)evenifnothingwas
saidaboutbenefitsintheinformationyoureceived.
We seehereanewsideof the“personality”ofSystem2.UntilnowI have mostly
describeditasamoreorlessacquiescentmonitor,whichallowsconsiderableleewayto
System1.IhavealsopresentedSystem2asactiveindeliberatememorysearch,complex
computations, comparisons, planning, and choice. In the bat-and-ball problem and in
manyotherexamplesoftheinterplaybetweenthetwosystems,itappearedthatSystem2
isultimatelyincharge,withtheabilitytoresistthesuggestionsofSystem1,slowthings
down,andimposelogicalanalysis.Self-criticismisoneofthefunctionsofSystem2.In
thecontextofattitudes,however, System 2 ismoreofan apologistfortheemotionsof
System1thanacriticofthoseemotions—anendorserratherthananenforcer.Itssearch
forinformationandargumentsismostlyconstrainedtoinformationthatisconsistentwith
existing beliefs, not with an intention to examine them. An active, coherence-seeking
System1suggestssolutionstoanundemandingSystem2.
SpeakingofSubstitutionandHeuristics
“Dowestillrememberthequestionwearetryingtoanswer?Orhavewesubstituted
aneasierone?”
“Thequestionwefaceiswhetherthiscandidatecansucceed.Thequestionweseem
toansweriswhethersheinterviewswell.Let’snotsubstitute.”
“Helikesthe project, sohe thinks itscostsare low anditsbenefits arehigh.Nice
exampleoftheaffectheuristic.”
“Weareusinglastyearsperformanceasaheuristictopredictthevalueofthefirm
severalyearsfromnow.Isthisheuristicgoodenough?Whatotherinformationdowe
need?”
The table below contains a list of features and activities that have been attributed to
System1.Eachoftheactivesentencesreplacesastatement,technicallymoreaccuratebut
hardertounderstand,totheeffectthatamentaleventoccursautomaticallyandfast.My
hopeisthatthelistoftraitswillhelpyoudevelopanintuitivesenseofthe“personality”of
the fictitious System 1. As happens with other characters you know, you will have
hunchesaboutwhatSystem1woulddounderdifferentcircumstances,andmostofyour
huncheswillbecorrect.
CharacteristicsofSystem1
generatesimpressions,feelings,andinclinations;whenendorsedbySystem2these
becomebeliefs,attitudes,andintentions
operatesautomaticallyandquickly,withlittleornoeffort,andnosenseofvoluntary
control
canbeprogrammedbySystem 2 tomobilizeattentionwhenaparticularpattern is
detected(search)
executesskilledresponsesandgeneratesskilledintuitions,afteradequatetraining
createsacoherentpatternofactivatedideasinassociativememory
links a sense of cognitive ease to illusions of truth, pleasant feelings, and reduced
vigilance
distinguishesthesurprisingfromthenormal
infersandinventscausesandintentions
neglectsambiguityandsuppressesdoubt
isbiasedtobelieveandconfirm
exaggeratesemotionalconsistency(haloeffect)
focusesonexistingevidenceandignoresabsentevidence(WYSIATI)
generatesalimitedsetofbasicassessments
representssetsbynormsandprototypes,doesnotintegrate
matchesintensitiesacrossscales(e.g.,sizetoloudness)
computesmorethanintended(mentalshotgun)
sometimessubstitutesaneasierquestionforadifficultone(heuristics)
ismoresensitivetochangesthantostates(prospecttheory)*
overweightslowprobabilities*
showsdiminishingsensitivitytoquantity(psychophysics)*
respondsmorestronglytolossesthantogains(lossaversion)*
framesdecisionproblemsnarrowly,inisolationfromoneanother*
P
Part2
P
HeuristicsandBiases
P
TheLawofSmallNumbers
A study of the incidence of kidney cancer in the 3,141 counties of the United a><
HЉStates reveals a remarkable pattern. The counties in which the incidence of kidney
cancer is lowest are mostly rural, sparsely populated, and located in traditionally
RepublicanstatesintheMidwest,theSouth,andtheWest.Whatdoyoumakeofthis?
Yourmindhasbeenveryactiveinthelastfewseconds,anditwasmainlyaSystem2
operation.Youdeliberatelysearchedmemoryandformulatedhypotheses.Someeffortwas
involved;yourpupilsdilated,andyourheartrateincreasedmeasurably.ButSystem1was
notidle:theoperationofSystem2dependedonthefactsandsuggestionsretrievedfrom
associative memory. You probably rejected the idea that Republican politics provide
protectionagainstkidneycancer.Verylikely,youendedupfocusingonthefactthatthe
counties with low incidence of cancer are mostly rural. The witty statisticians Howard
WainerandHarrisZwerling,fromwhomIlearnedthisexample,commented,“Itisboth
easyandtemptingtoinferthattheirlowcancerratesaredirectlyduetothecleanlivingof
the rural lifestyle—no air pollution, no water pollution, access to fresh food without
additives.”Thismakesperfectsense.
Nowconsiderthecountiesinwhichtheincidenceofkidneycancerishighest.These
ailing counties tend to be mostly rural, sparsely populated, and located in traditionally
RepublicanstatesintheMidwest,theSouth,andtheWest.Tongue-in-cheek,Wainerand
Zwerlingcomment:“Itiseasytoinferthattheirhighcancerratesmightbedirectlydueto
thepovertyoftherurallifestyle—noaccesstogoodmedicalcare,ahigh-fatdiet,andtoo
much alcohol, too much tobacco.” Something is wrong, of course. The rural lifestyle
cannotexplainbothveryhighandverylowincidenceofkidneycancer.
ThekeyfactorisnotthatthecountieswereruralorpredominantlyRepublican.Itis
thatruralcountieshavesmallpopulations.Andthemainlessontobelearnedisnotabout
epidemiology,itisaboutthedifficultrelationshipbetweenourmindandstatistics.System
1 is highly adept in one form of thinking—it automatically and effortlessly identifies
causal connections between events, sometimes even when the connection is spurious.
When told about the high-incidence counties, you immediately assumed that these
counties are different from other counties for a reason, that there must be a cause that
explains this difference. As we shall see, however, System 1 is inept when faced with
“merelystatistical”facts,whichchangetheprobabilityofoutcomesbutdonotcausethem
tohappen.
Arandomevent,bydefinition,doesnotlenditselftoexplanation,butcollectionsof
random events do behave in a highly regular fashion. Imagine a large urn filled with
marbles.Halfthemarblesarered,halfarewhite.Next,imagineaverypatientperson(ora
robot)whoblindlydraws4marblesfromtheurn,recordsthenumberofredballsinthe
sample,throwstheballsbackintotheurn,andthendoesitallagain,manytimes.Ifyou
summarize the results, you will find that the outcome “2 red, 2 white” occurs (almost
exactly) 6 times as often as the outcome “4 red” or “4 white.” This relationship is a
mathematicalfact.Youcanpredicttheoutcomeofrepeatedsamplingfromanurnjustas
confidentlyas you can predict whatwill happenif you hit an eggwith a hammer. You
cannotpredicteverydetailofhowtheshellwillshatter,butyoucanbesureofthegeneral
idea. There is a difference: the satisfying sense of causation that you experience when
thinkingofahammerhittinganeggisaltogetherabsentwhenyouthinkaboutsampling.
Arelatedstatisticalfact is relevanttothe cancer example.Fromthe same urn,two
verypatient marblecounters thatрy dake turns. Jackdraws 4 marbleson each trial, Jill
draws7.Theybothrecordeachtimetheyobserveahomogeneoussample—allwhiteorall
red.Iftheygoonlongenough,Jackwillobservesuchextremeoutcomesmoreoftenthan
Jill—byafactorof8(theexpectedpercentagesare12.5%and1.56%).Again,nohammer,
nocausation,butamathematicalfact:samples of 4marblesyieldextremeresultsmore
oftenthansamplesof7marblesdo.
Now imagine the population of the United States as marbles in a giant urn. Some
marblesare markedKC, forkidney cancer.You drawsamples ofmarbles andpopulate
eachcountyinturn.Ruralsamplesaresmallerthanothersamples.Justasinthegameof
JackandJill,extremeoutcomes(veryhighand/orverylowcancerrates)aremostlikelyto
befoundinsparselypopulatedcounties.Thisisallthereistothestory.
We started from a fact that calls for a cause: the incidence of kidney cancer varies
widely across counties and the differences are systematic. The explanation I offered is
statistical:extremeoutcomes(bothhighandlow)aremorelikelytobefoundinsmallthan
inlargesamples.Thisexplanationisnotcausal.Thesmallpopulationofacountyneither
causesnorpreventscancer;itmerelyallowstheincidenceofcancertobemuchhigher(or
muchlower)thanitisinthelargerpopulation.Thedeepertruthisthatthereisnothingto
explain.Theincidenceofcancerisnottrulylowerorhigherthannormalinacountywith
asmallpopulation,itjustappearstobesoinaparticularyearbecauseofanaccidentof
sampling.Ifwerepeattheanalysisnextyear,wewillobservethesamegeneralpatternof
extremeresultsinthesmallsamples,butthecountieswherecancerwascommonlastyear
will not necessarily have a high incidence this year. If this is the case, the differences
betweendenseandruralcountiesdonotreallycountasfacts:theyarewhatscientistscall
artifacts,observationsthatareproducedentirelybysomeaspectofthemethodofresearch
—inthiscase,bydifferencesinsamplesize.
ThestoryIhavetoldmayhavesurprisedyou,butitwasnotarevelation.Youhave
longknownthattheresultsoflargesamplesdeservemoretrustthansmallersamples,and
evenpeoplewhoareinnocentofstatisticalknowledgehaveheardaboutthislawoflarge
numbers. But “knowing” is not a yes-no affair and you may find that the following
statementsapplytoyou:
Thefeature“sparselypopulated”didnotimmediatelystandoutasrelevantwhenyou
readtheepidemiologicalstory.
Youwereatleastmildlysurprisedbythesizeofthedifferencebetweensamplesof4
andsamplesof7.
Evennow,youmustexertsomementalefforttoseethatthefollowingtwostatements
meanexactlythesamething:
Largesamplesaremoreprecisethansmallsamples.
Smallsamplesyieldextremeresultsmoreoftenthanlargesamplesdo.
Thefirststatementhasaclearringoftruth,butuntilthesecondversionmakesintuitive
sense,youhavenottrulyunderstoodthefirst.
Thebottomline:yes,youdidknowthattheresultsoflargesamplesaremoreprecise,
butyoumaynowrealizethatyoudidnotknowitverywell.Youarenotalone.Thefirst
studythatAmosandIdidtogethershowedthatevensophisticatedresearchershavepoor
intuitionsandawobblyunderstandingofsamplingeffects.
TheLawofSmallNumbers
MycollaborationwithAmosintheearly1970sbeganwithadiscussionoftheclaimthat
peoplewhohavehadnotraininginstatisticsaregood“intuitivestatisticians.”Hetoldmy
seminar and me of researchers at the University of Michigan who were generally
optimisticabout intuitivestatistics.I had strong feelings about that claim, which I took
personally:IhadrecentlydiscoveredthatIwasnotagoodintuitivestatistician,andIdid
notbelievethatIwasworsethanothers.
Foraresearchpsychologist,samplingvariationisnotacuriosity;itisanuisanceand
a costly obstacle, which turns the undertaking of every research project into a gamble.
Supposethatyouwishtoconfirmthehypothesisthatthevocabularyoftheaveragesix-
year-old girl is larger than the vocabulary of an average boy of the same age. The
hypothesisistrueinthepopulation;theaveragevocabularyofgirlsisindeedlarger.Girls
andboysvaryagreatdeal,however,andbytheluckofthedrawyoucouldselectasample
inwhichthedifferenceisinconclusive,orevenoneinwhichboysactuallyscorehigher.If
youaretheresearcher,thisoutcomeiscostlytoyoubecauseyouhavewastedtimeand
effort,andfailedtoconfirmahypothesisthatwasinfacttrue.Usingasufficientlylarge
sampleistheonlywaytoreducetherisk.Researcherswhopicktoosmallasampleleave
themselvesatthemercyofsamplingluck.
The risk of error can be estimated for any given sample size by a fairly simple
procedure. Traditionally, however, psychologists do not use calculations to decide on a
samplesize.Theyusetheirjudgment,whichiscommonlyflawed.AnarticleIhadread
shortlybeforethedebatewithAmosdemonstratedthemistakethatresearchersmade(they
stilldo)byadramaticobservation.Theauthorpointedoutthatpsychologistscommonly
chosesamplessosmallthattheyexposedthemselvestoa50%riskoffailingtoconfirm
their true hypotheses! No researcher in his right mind would accept such a risk. A
plausible explanation was that psychologists’ decisions about sample size reflected
prevalentintuitivemisconceptionsoftheextentofsamplingvariation.
The article shocked me, because it explained some troubles I had had in my own
research.Likemostresearchpsychologists,Ihadroutinelychosensamplesthatweretoo
smallandhadoftenobtainedresultsthatmadenosense.NowIknewwhy:theoddresults
wereactuallyartifactsofmyresearchmethod.Mymistakewasparticularlyembarrassing
becauseItaughtstatisticsandknewhowtocomputethesamplesizethatwouldreducethe
risk of failure to an acceptable level. But I had never chosen a sample size by
computation.Likemycolleagues,Ihadtrustedtraditionandmyintuitioninplanningmy
experiments and had never thought seriously about the issue. When Amos visited the
seminar,Ihadalreadyreachedtheconclusionthatmyintuitionsweredeficient,andinthe
courseoftheseminarwequicklyagreedthattheMichiganoptimistswerewrong.
AmosandIsetouttoexaminewhetherIwastheonlyfooloramemberofamajority
offools,bytestingwhetherresearchersselectedformathematicalexpertisewouldmake
similarmistakes.Wedevelopedaquestionnairethatdescribedrealisticresearchsituations,
includingreplicationsofsuccessfulexperiments.Itaskedtheresearcherstochoosesample
sizes,toassesstherisksoffailuretowhichtheirdecisionsexposedthem,andtoprovide
advice to hypothetical graduate students planning their research. Amos collected the
responses of a group of sophisticated participants (including authors of two statistical
textbooks)atameetatiрp>
AmosandIcalledourfirstjointarticle“BeliefintheLawofSmallNumbers.”We
explained,tongue-in-cheek,that“intuitionsaboutrandomsamplingappeartosatisfythe
law of small numbers, which asserts that the law of large numbers applies to small
numbersaswell.”Wealsoincludedastronglywordedrecommendationthatresearchers
regardtheir“statisticalintuitionswithpropersuspicionandreplaceimpressionformation
bycomputationwheneverpossible.”
ABiasofConfidenceOverDoubt
Inatelephonepollof300seniors,60%supportthepresident.
Ifyouhadtosummarizethemessageofthissentenceinexactlythreewords,whatwould
they be? Almost certainly you would choose “elderly support president.” These words
providethegistofthestory.Theomitteddetailsofthepoll,thatitwasdoneonthephone
with a sample of 300, are of no interest in themselves; they provide background
informationthatattractslittleattention.Yoursummarywouldbethesameifthesample
sizehadbeendifferent.Ofcourse,acompletelyabsurdnumberwoulddrawyourattention
(“atelephonepollof6[or60million]elderlyvoters…”).Unlessyouareaprofessional,
however,youmaynotreactverydifferentlytoasampleof150andtoasampleof3,000.
Thatisthemeaningofthestatementthat“peoplearenotadequatelysensitivetosample
size.”
The message about the poll contains information of two kinds: the story and the
sourceofthestory.Naturally,youfocusonthestoryratherthanonthereliabilityofthe
results.Whenthereliabilityisobviouslylow,however,themessagewillbediscredited.If
youaretoldthat“apartisangrouphasconductedaflawedandbiasedpolltoshowthatthe
elderlysupportthepresident…”youwillofcourserejectthefindingsofthepoll,andthey
willnotbecomepartofwhatyoubelieve.Instead,thepartisanpollanditsfalseresults
willbecomeanewstoryaboutpoliticallies.Youcanchoosetodisbelieveamessagein
suchclear-cutcases.Butdoyoudiscriminatesufficientlybetween“IreadinTheNewYork
Times…”and“Iheardatthewatercooler…”?CanyourSystem1distinguishdegreesof
belief?TheprincipleofWYSIATIsuggeststhatitcannot.
AsIdescribedearlier,System1isnotproneto doubt. Itsuppressesambiguityand
spontaneously constructs stories that are as coherent as possible. Unless the message is
immediately negated, the associations that it evokes will spread as if the message were
true.System2iscapableofdoubt,becauseitcanmaintainincompatiblepossibilitiesat
thesametime.However,sustainingdoubtisharderworkthanslidingintocertainty.The
lawofsmallnumbersisamanifestationofageneralbiasthatfavorscertaintyoverdoubt,
whichwillturnupinmanyguisesinfollowingchapters.
Thestrongbiastowardbelievingthatsmallsamplescloselyresemblethepopulation
fromwhichtheyaredrawnisalsopartofalargerstory:wearepronetoexaggeratethe
consistencyandcoherenceofwhatwesee.Theexaggeratedfaithofresearchersinwhat
can be learned from a few observations is closely related to the halo effect thрhe , the
senseweoftengetthatweknowandunderstandapersonaboutwhomweactuallyknow
verylittle.System1runsaheadofthefactsinconstructingarichimageonthebasisof
scrapsofevidence.Amachineforjumpingtoconclusionswillactasifitbelievedinthe
law of small numbers. More generally, it will produce a representation of reality that
makestoomuchsense.
CauseandChance
Theassociativemachineryseekscauses.Thedifficultywehavewithstatisticalregularities
is that they call for a different approach. Instead of focusing on how the event at hand
cametobe,thestatisticalviewrelatesittowhatcouldhavehappenedinstead.Nothingin
particularcausedittobewhatitis—chanceselecteditfromamongitsalternatives.
Ourpredilectionforcausalthinkingexposesustoseriousmistakesinevaluatingthe
randomnessof truly randomevents. For anexample, take thesex of sixbabies bornin
sequenceatahospital.Thesequenceofboysandgirlsisobviouslyrandom;theeventsare
independentofeachother,andthenumberofboysandgirlswhowereborninthehospital
inthelastfewhourshasnoeffectwhatsoeveronthesexofthenextbaby.Nowconsider
threepossiblesequences:
BBBGGG
GGGGGG
BGBBGB
Are the sequences equally likely? The intuitive answer—“of course not!”—is false.
Because the events are independent and because the outcomes B and G are
(approximately)equallylikely,thenanypossiblesequenceofsixbirthsisaslikelyasany
other.Evennowthatyouknowthisconclusionistrue,itremainscounterintuitive,because
only the third sequence appears random. As expected, BGBBGB is judged much more
likelythantheothertwosequences.Wearepatternseekers,believersinacoherentworld,
inwhichregularities(suchasasequenceofsixgirls)appearnotbyaccidentbutasaresult
of mechanical causality or of someone’s intention. We do not expect to see regularity
producedbyarandomprocess,andwhenwedetectwhatappearstobearule,wequickly
reject the idea that the process is truly random. Random processes produce many
sequencesthatconvincepeoplethattheprocessisnotrandomafterall.Youcanseewhy
assuming causality could have had evolutionary advantages. It is part of the general
vigilancethatwehaveinheritedfromancestors.Weareautomaticallyonthelookoutfor
thepossibilitythattheenvironmenthaschanged.Lionsmayappearontheplainatrandom
times,butitwouldbesafertonoticeandrespondtoanapparentincreaseintherateof
appearance of prides of lions, even if it is actually due to the fluctuations of a random
process.
The widespread misunderstanding of randomness sometimes has significant
consequences. In our article on representativeness, Amos and I cited the statistician
WilliamFeller,whoillustratedtheeasewithwhichpeopleseepatternswherenoneexists.
DuringtheintensiverocketbombingofLondoninWorldWarII,itwasgenerallybelieved
that the bombing could not be random because a map of the hits revealed conspicuous
gaps.SomesuspectedthatGerman spies were locatedintheunharmedareas. A careful
statisticalanalysisrevealedthatthedistributionofhitswastypicalofarandomprocess—
and typical as well in evoking a strong impression that it was not random. “To the
untrainedeye,”Fellerremarks,“randomnessappearsasregularityortendencytocluster.”
I soon had an occasion to apply what I had learned frpeaрrainom Feller. The Yom
KippurWarbrokeoutin1973,andmyonlysignificantcontributiontothewareffortwas
toadvisehighofficersintheIsraeliAirForcetostopaninvestigation.Theairwarinitially
wentquite badly for Israel, becauseof theunexpectedly good performanceof Egyptian
ground-to-airmissiles.Losseswerehigh,andtheyappearedtobeunevenlydistributed.I
wastoldoftwosquadronsflyingfromthesamebase,oneofwhichhadlostfourplanes
whiletheotherhadlostnone.Aninquirywasinitiatedinthehopeoflearningwhatitwas
thattheunfortunatesquadronwasdoingwrong.Therewasnopriorreasontobelievethat
one of the squadrons was more effective than the other, and no operational differences
werefound,butofcoursethelivesofthepilotsdifferedinmanyrandomways,including,
asIrecall,howoftentheywenthomebetweenmissionsandsomethingabouttheconduct
ofdebriefings.Myadvicewasthatthecommandshouldacceptthatthedifferentoutcomes
wereduetoblindluck,andthattheinterviewingofthepilotsshouldstop.Ireasonedthat
luck was the most likely answer, that a random search for a nonobvious cause was
hopeless,andthatinthemeantimethepilotsinthesquadronthathadsustainedlossesdid
notneedtheextraburdenofbeingmadetofeelthattheyandtheirdeadfriendswereat
fault.
Someyearslater,AmosandhisstudentsTomGilovichandRobertVallonecauseda
stirwiththeirstudyofmisperceptionsofrandomnessinbasketball.The“fact”thatplayers
occasionallyacquireahothandisgenerallyacceptedbyplayers,coaches,andfans.The
inferenceisirresistible:aplayersinksthreeorfourbasketsinarowandyoucannothelp
forming the causal judgment that this player is now hot, with a temporarily increased
propensitytoscore.Playersonbothteamsadapttothisjudgment—teammatesaremore
likelytopasstothehotscorerandthedefenseismorelikelytodoubleteam.Analysisof
thousandsofsequencesofshotsledtoadisappointingconclusion:thereisnosuchthing
asahothandinprofessionalbasketball,eitherinshootingfromthefieldorscoringfrom
thefoulline.Ofcourse,someplayersaremoreaccuratethanothers,butthesequenceof
successesandmissedshotssatisfiesalltestsofrandomness.Thehothandisentirelyinthe
eye of the beholders, who are consistently too quick to perceive order and causality in
randomness.Thehothandisamassiveandwidespreadcognitiveillusion.
Thepublicreactiontothisresearchispartofthestory.Thefindingwaspickedupby
the press because of its surprising conclusion, and the general response was disbelief.
WhenthecelebratedcoachoftheBostonCeltics,RedAuerbach,heardofGilovichand
hisstudy,heresponded,“Whoisthisguy?Sohemakesastudy.Icouldn’tcareless.”The
tendencytoseepatternsinrandomnessisoverwhelming—certainlymoreimpressivethan
aguymakingastudy.
Theillusionofpatternaffectsourlivesinmanywaysoffthebasketballcourt.How
many good years should you wait before concluding that an investment adviser is
unusually skilled? How many successful acquisitions should be needed for a board of
directorstobelievethattheCEOhasextraordinaryflairforsuchdeals?Thesimpleanswer
tothesequestionsisthatifyoufollowyourintuition,youwillmoreoftenthannoterrby
misclassifyingarandomeventassystematic.Wearefartoowillingtorejectthebeliefthat
muchofwhatweseeinlifeisrandom.
IbeganthischapterwiththeexampleofcancerincidenceacrosstheUnitedStates.
Theexampleappearsinabookintendedforstatisticsteachers,butIlearnedaboutitfrom
an amusing article by the two statisticians I quoted earlier, Howard Wainer and Harris
Zwerling.Theiressayfocusedonalargeiiveрothersnvestment,some$1.7billion,which
theGatesFoundationmadetofollowupintriguingfindingsonthecharacteristicsofthe
mostsuccessfulschools.Manyresearchershavesoughtthesecretofsuccessfuleducation
byidentifyingthemostsuccessfulschoolsinthehopeofdiscoveringwhatdistinguishes
them from others. One of the conclusions of this research is that the most successful
schools,onaverage,aresmall.Inasurveyof1,662schoolsinPennsylvania,forinstance,
6ofthetop50weresmall,whichis an overrepresentationby afactorof4.Thesedata
encouragedtheGatesFoundationtomakeasubstantialinvestmentinthecreationofsmall
schools,sometimesbysplittinglargeschoolsintosmallerunits.Atleasthalfadozenother
prominentinstitutions,suchastheAnnenbergFoundationandthePewCharitableTrust,
joined the effort, as did the U.S. Department of Education’s Smaller Learning
CommunitiesProgram.
Thisprobablymakesintuitivesensetoyou.Itiseasytoconstructacausalstorythat
explainshowsmallschoolsareabletoprovidesuperioreducationandthusproducehigh-
achievingscholarsbygivingthemmorepersonalattentionandencouragementthanthey
couldgetinlargerschools.Unfortunately,thecausalanalysisispointlessbecausethefacts
arewrong.IfthestatisticianswhoreportedtotheGatesFoundationhadaskedaboutthe
characteristicsoftheworstschools,theywouldhavefoundthatbadschoolsalsotendto
besmallerthanaverage.Thetruthisthatsmallschoolsarenotbetteronaverage;theyare
simplymorevariable.Ifanything,sayWainerandZwerling,largeschoolstendtoproduce
betterresults,especiallyinhighergradeswhereavarietyofcurricularoptionsisvaluable.
Thanks to recent advances in cognitive psychology, we can now see clearly what
Amos and I could only glimpse: the law of small numbers is part of two larger stories
abouttheworkingsofthemind.
The exaggerated faith in small samples is only one example of a more general
illusion—wepaymoreattentiontothecontentofmessagesthantoinformationabout
their reliability, and as a result end up with a view of the world around us that is
simpler and more coherent than the data justify. Jumping to conclusions is a safer
sportintheworldofourimaginationthanitisinreality.
Statisticsproducemanyobservationsthatappeartobegforcausalexplanationsbut
do not lend themselves to such explanations. Many facts of the world are due to
chance, including accidents of sampling. Causal explanations of chance events are
inevitablywrong.
SpeakingoftheLawofSmallNumbers
“Yes,thestudiohashadthreesuccessfulfilmssincethenewCEOtookover.Butitis
tooearlytodeclarehehasahothand.”
“Iwon’tbelievethatthenewtraderisageniusbeforeconsultingastatisticianwho
couldestimatethelikelihoodofhisstreakbeingachanceevent.”
“Thesampleofobservationsistoosmalltomakeanyinferences.Let’snotfollowthe
lawofsmallnumbers.”
“Iplantokeeptheresultsoftheexperimentsecretuntilwehaveasufficientlylarge
sample.Otherwisortрxperewewillfacepressuretoreachaconclusionprematurely.”
P
Anchors
AmosandIonceriggedawheeloffortune.Itwasmarkedfrom0to100,butwehadit
built so that it would stop only at 10 or 65. We recruited students of the University of
Oregonasparticipantsinourexperiment.Oneofuswouldstandinfrontofasmallgroup,
spin the wheel, and ask them to write down the number on which the wheel stopped,
whichofcoursewaseither10or65.Wethenaskedthemtwoquestions:
IsthepercentageofAfricannationsamongUNmemberslargerorsmallerthanthe
numberyoujustwrote?
WhatisyourbestguessofthepercentageofAfricannationsintheUN?
Thespinofawheeloffortune—evenonethatisnotrigged—cannotpossiblyyielduseful
information about anything, and the participants in our experiment should simply have
ignoredit.Buttheydidnotignoreit.Theaverageestimatesofthosewhosaw10and65
were25%and45%,respectively.
Thephenomenonwewerestudyingissocommonandsoimportantintheeveryday
world that you should know its name: it is an anchoring effect. It occurs when people
consideraparticularvalueforanunknownquantitybeforeestimatingthatquantity.What
happens is one of the most reliable and robust results of experimental psychology: the
estimatesstayclosetothenumberthatpeopleconsidered—hencetheimageofananchor.
IfyouareaskedwhetherGandhiwasmorethan114yearsoldwhenhediedyouwillend
up with a much higher estimate of his age at death than you would if the anchoring
questionreferredtodeathat35.Ifyouconsiderhowmuchyoushouldpayforahouse,
youwillbeinfluencedbytheaskingprice.Thesamehousewillappearmorevaluableif
itslistingpriceishighthanifitislow,evenifyouaredeterminedtoresisttheinfluenceof
thisnumber;andsoon—thelistofanchoringeffectsisendless.Anynumberthatyouare
askedtoconsiderasapossiblesolutiontoanestimationproblemwillinduceananchoring
effect.
Wewerenotthefirsttoobservetheeffectsofanchors,butourexperimentwasthe
firstdemonstrationofitsabsurdity:people’sjudgmentswereinfluencedbyanobviously
uninformativenumber.Therewasnowaytodescribetheanchoringeffectofawheelof
fortuneasreasonable.AmosandIpublishedtheexperimentinourSciencepaper,anditis
oneofthebestknownofthefindingswereportedthere.
Therewasonlyonetrouble:AmosandIdidnotfullyagreeonthepsychologyofthe
anchoringeffect.Hesupportedoneinterpretation,Ilikedanother,andweneverfounda
waytosettletheargument.Theproblemwasfinallysolveddecadeslaterbytheeffortsof
numerous investigators. It is now clear that Amos and I were both right. Two different
mechanisms produce anchoring effects—one for each system. There is a form of
anchoringthatoccursinadeliberateprocessofadjustment,anoperationofSystem2.And
thereisanchoringthatoccursbyaprimingeffect,anautomaticmanifestationofSystem1.
AnchoringasAdjustment
Amos liked the idea of an adjust-and-anchor heuristic as a strategy for estimating
uncertainquantities:startfromananchoringnumber,assesswhetheritistoohighortoo
low, and gradually adjust your estimate by mentally “moving” from the anchor. The
adjustment typically ends prematurely, because people stop when they are no longer
certain that they should move farther. Decades after our disagreement, and years after
Amos’sdeath,convincingevidenceofsuchaprocesswasofferedindependentlybytwo
psychologistswhohadworkedcloselywithAmosearlyintheircareers:EldarShafirand
TomGilovichtogetherwiththeirownstudents—Amos’sintellectualgrandchildren!
Togettheidea,takeasheetofpaperanddrawa2½-inchlinegoingup,startingatthe
bottomofthepage—withoutaruler.Nowtakeanothersheet,andstartatthetopanddraw
alinegoingdown untilitis2½ inches fromthebottom.Compare the lines.Thereisa
goodchancethatyourfirstestimateof2½incheswasshorterthanthesecond.Thereason
isthatyoudonotknowexactlywhatsuchalinelookslike;thereisarangeofuncertainty.
Youstopnearthebottomoftheregionofuncertaintywhenyoustartfromthebottomof
thepageandnearthetopoftheregionwhenyoustartfromthetop.RobynLeBoeufand
Shafir found many examples of that mechanism in daily experience. Insufficient
adjustment neatly explains why you are likely to drive too fast when you come off the
highway onto city streets—especially if you are talking with someone as you drive.
Insufficient adjustment is also a source of tension between exasperated parents and
teenagers who enjoy loud music in their room. Le Boeuf and Shafir note that a “well-
intentionedchildwhoturnsdownexceptionallyloudmusictomeetaparent’sdemandthat
itbeplayedata‘reasonable’volumemayfailtoadjustsufficientlyfromahighanchor,
andmayfeelthatgenuineattemptsatcompromisearebeingoverlooked.”Thedriverand
thechildbothdeliberatelyadjustdown,andbothfailtoadjustenough.
Nowconsiderthesequestions:
WhendidGeorgeWashingtonbecomepresident?
WhatistheboilingtemperatureofwateratthetopofMountEverest?
Thefirstthingthathappenswhenyouconsidereachofthesequestionsisthatananchor
comestoyourmind,andyouknowboththatitiswrongandthedirectionofthecorrect
answer.YouknowimmediatelythatGeorgeWashingtonbecamepresidentafter1776,and
youalsoknowthattheboilingtemperatureofwateratthetopofMountEverestislower
than100°C.Youhavetoadjustintheappropriatedirectionbyfindingargumentstomove
awayfromtheanchor.Asinthecaseofthelines,youarelikelytostopwhenyouareno
longersureyoushouldgofarther—atthenearedgeoftheregionofuncertainty.
NickEpleyandTomGilovichfoundevidencethatadjustmentisadeliberateattemptto
findreasonstomoveawayfromtheanchor:peoplewhoareinstructedtoshaketheirhead
whentheyheartheanchor,asiftheyrejectedit,movefartherfromtheanchor,andpeople
who nod their head show enhanced anchoring. Epley and Gilovich also confirmed that
adjustmentisan effortful operation.People adjust less(staycloser tothe anchor) when
their mental resources are depleted, either because their memory is loaded with
dighdth=igitsorbecausetheyareslightlydrunk.Insufficientadjustmentisafailureofa
weakorlazySystem2.
Sowenowknow thatAmoswasrightfor at leastsomecasesof anchoring, which
involveadeliberateSystem2adjustmentinaspecifieddirectionfromananchor.
AnchoringasPrimingEffect
WhenAmosandIdebated anchoring, Iagreedthatadjustmentsometimesoccurs,but I
was uneasy. Adjustment is a deliberate and conscious activity, but in most cases of
anchoringthereisnocorrespondingsubjectiveexperience.Considerthesetwoquestions:
WasGandhimoreorlessthan144yearsoldwhenhedied?
HowoldwasGandhiwhenhedied?
Did you produce your estimate by adjusting down from 144? Probably not, but the
absurdlyhighnumberstillaffectedyourestimate.Myhunchwasthatanchoringisacase
of suggestion. This is the word we use when someone causes us to see, hear, or feel
somethingbymerelybringingittomind.Forexample,thequestion“Doyounowfeela
slightnumbnessinyourleftleg?”alwayspromptsquiteafewpeopletoreportthattheir
leftlegdoesindeedfeelalittlestrange.
AmoswasmoreconservativethanIwasabouthunches,andhecorrectlypointedout
that appealing to suggestion did not help us understand anchoring, because we did not
know how to explain suggestion. I had to agree that he was right, but I never became
enthusiastic about the idea of insufficient adjustment as the sole cause of anchoring
effects. We conducted many inconclusive experiments in an effort to understand
anchoring,butwefailedandeventuallygaveuptheideaofwritingmoreaboutit.
Thepuzzlethatdefeatedusisnowsolved,becausetheconceptofsuggestionisno
longer obscure: suggestion is a priming effect, which selectively evokes compatible
evidence. You did not believe for a moment that Gandhi lived for 144 years, but your
associativemachinerysurelygeneratedanimpressionofaveryancientperson.System1
understands sentences by trying to make them true, and the selective activation of
compatible thoughts produces a family of systematic errors that make us gullible and
pronetobelievetoostronglywhateverwebelieve.WecannowseewhyAmosandIdid
notrealizethatthereweretwotypesofanchoring:theresearchtechniquesandtheoretical
ideasweneededdidnotyetexist.Theyweredeveloped,muchlater,byotherpeople.A
processthatresemblessuggestionisindeedatworkinmanysituations:System1triesits
best to construct a world in which the anchor is the true number. This is one of the
manifestationsofassociativecoherencethatIdescribedinthefirstpartofthebook.
The German psychologists Thomas Mussweiler and Fritz Strack offered the most
compelling demonstrations of the role of associative coherence in anchoring. In one
experiment, they asked an anchoring question about temperature: “Is the annual mean
temperature in Germany higher or lower than 20°C (68°F)?” or “Is the annual mean
temperatureinGermanyhigherorlowerthan5°C(40°F)?”
Allparticipantswerethenbrieflyshownwordsthattheywereaskedtoidentify.The
researchers found that 68°F made it easier to recognize summer words (like sun and
beach),and40°Ffacilitatedwinterwords(likefrostandski).Theselectiveactivationof
compatiblememoriesexplainsanchoring:thehighandthelownumbersactivatedifferent
sets of ideas in memory. The estimates of annual temperature draw on these biased
samplesof ideasand aretherefore biasedas well.In anotherelegant studyin thesame
vein, participants were asked about the average price of German cars. A high anchor
selectivelyprimedthenamesofluxurybrands(Mercedes,Audi),whereasthelowanchor
primedbrandsassociated withmass-marketcars (Volkswagen). We sawearlier that any
primewilltendtoevokeinformationthatiscompatiblewithit.Suggestionandanchoring
arebothexplainedbythesameautomaticoperationofSystem1.AlthoughIdidnotknow
howtoproveitatthetime,myhunchaboutthelinkbetweenanchoringandsuggestion
turnedouttobecorrect.
TheAnchoringIndex
Manypsychologicalphenomenacanbedemonstratedexperimentally,butfewcanactually
bemeasured.Theeffectofanchorsisanexception.Anchoringcanbemeasured,anditis
animpressivelylargeeffect.SomevisitorsattheSanFranciscoExploratoriumwereasked
thefollowingtwoquestions:
Istheheightofthetallestredwoodmoreorlessthan1,200feet?
Whatisyourbestguessabouttheheightofthetallestredwood?
The “high anchor” in this experiment was 1,200 feet. For other participants, the first
questionreferredtoa“lowanchor”of180feet.Thedifferencebetweenthetwoanchors
was1,020feet.
As expected, the two groups produced very different mean estimates: 844 and 282
feet.Thedifferencebetweenthemwas562feet.Theanchoringindexissimplytheratioof
thetwodifferences(562/1,020)expressedasapercentage:55%.Theanchoringmeasure
wouldbe 100% forpeople who slavishlyadopt the anchoras anestimate,and zerofor
peoplewhoareabletoignoretheanchoraltogether.Thevalueof55%thatwasobserved
inthisexampleistypical.Similarvalueshavebeenobservedinnumerousotherproblems.
Theanchoringeffectisnotalaboratorycuriosity;itcanbejustasstronginthereal
world. In an experiment conducted some years ago, real-estate agents were given an
opportunitytoassessthevalueofahousethatwasactuallyonthemarket.Theyvisitedthe
houseandstudiedacomprehensivebookletofinformationthatincludedanaskingprice.
Halftheagentssawanaskingpricethatwassubstantiallyhigherthanthelistedpriceof
thehouse;theotherhalfsawanaskingpricethatwassubstantiallylower.Eachagentgave
heropinionaboutareasonablebuyingpriceforthehouseandthelowestpriceatwhich
shewouldagreetosellthehouseifsheownedit.Theagentswerethenaskedaboutthe
factorsthathadaffectedtheirjudgment.Remarkably,theaskingpricewasnotoneofthese
factors;theagentstookprideintheirabilitytoignoreit.Theyinsistedthatthelistingprice
had no effect on their responses, but they were wrong: the anchoring effect was 41%.
Indeed, the professionals were almost as susceptible to anchoring effects as business
schoolstudentswithnoreal-estateexperience,whoseanchoringindexwas48%.Theonly
difference between the two groups was that the students conceded that they were
influencedbytheanchor,whiletheprofessionalsdeniedthatinfluence.
Powerful anchoring effects are found in decisions that people make about money,
suchaswhentheychoosehowmuchtocontributeal.lsdeniedtoacause.Todemonstrate
this effect, we told participants in the Exploratorium study about the environmental
damagecausedbyoiltankersinthePacificOceanand asked abouttheirwillingnessto
makeanannualcontribution“tosave50,000offshorePacificCoastseabirdsfromsmall
offshoreoilspills,untilwaysarefoundtopreventspillsorrequiretankerownerstopay
fortheoperation.”Thisquestionrequiresintensitymatching:therespondentsareasked,in
effect, to find the dollar amount of a contribution that matches the intensity of their
feelingsabouttheplightoftheseabirds.Someofthevisitorswerefirstaskedananchoring
question,suchas,“Wouldyoubewillingtopay$5…,”beforethepoint-blankquestionof
howmuchtheywouldcontribute.
When no anchor was mentioned, the visitors at the Exploratorium—generally an
environmentallysensitivecrowd—saidtheywerewillingtopay$64,onaverage.When
theanchoringamountwasonly$5,contributionsaveraged$20.Whentheanchorwasa
ratherextravagant$400,thewillingnesstopayrosetoanaverageof$143.
The difference between the high-anchor and low-anchor groups was $123. The
anchoring effect was above 30%, indicating that increasing the initial request by $100
broughtareturnof$30inaveragewillingnesstopay.
Similarorevenlargeranchoringeffectshavebeenobtainedinnumerousstudiesof
estimatesandofwillingnesstopay.Forexample,Frenchresidentsoftheheavilypolluted
Marseillesregionwereaskedwhatincreaseinlivingcoststheywouldacceptiftheycould
liveinalesspollutedregion.Theanchoringeffectwasover50%inthatstudy.Anchoring
effects are easily observed in online trading, where the same item is often offered at
different “buy now” prices. The “estimate” in fine-art auctions is also an anchor that
influencesthefirstbid.
There are situations in which anchoring appears reasonable. After all, it is not
surprisingthatpeoplewhoareaskeddifficultquestionsclutchatstraws,andtheanchoris
aplausiblestraw.IfyouknownexttonothingaboutthetreesofCaliforniaandareasked
whetheraredwoodcanbetallerthan1,200feet,youmightinferthatthisnumberisnot
toofarfromthetruth.Somebodywhoknowsthetrueheightthoughtupthatquestion,so
theanchormaybeavaluablehint.However,akeyfindingofanchoringresearchisthat
anchors that are obviously random can be just as effective as potentially informative
anchors. When we used a wheel of fortune to anchor estimates of the proportion of
AfricannationsintheUN,theanchoringindexwas44%,wellwithintherangeofeffects
observedwithanchorsthatcouldplausiblybetakenashints.Anchoringeffectsofsimilar
sizehavebeenobservedinexperimentsinwhichthelastfewdigitsoftherespondent’s
Social Security number was used as the anchor (e.g., for estimating the number of
physiciansintheircity).Theconclusionisclear:anchorsdonothavetheireffectsbecause
peoplebelievetheyareinformative.
The power of random anchors has been demonstrated in some unsettling ways.
Germanjudgeswithanaverageofmorethanfifteenyearsofexperienceonthebenchfirst
readadescriptionofawomanwhohadbeencaughtshoplifting,thenrolledapairofdice
thatwereloadedsoeveryrollresultedineithera3ora9.Assoonasthedicecametoa
stop,thejudgeswereaskedwhethertheywouldsentencethewomantoaterminprison
greaterorlesser,inmonths,thanthenumbershowingonthedice.Finally,thejudgeswere
instructed to specify the exact prison sentence they would give to the shoplifter. On
average,thosewhohadrolleda9saidtheywouldsentenceherto8months;thosewho
rolleda3saidthifAfricatheywouldsentenceherto5months;theanchoringeffectwas
50%.
UsesandAbusesofAnchors
By now you should be convinced that anchoring effects—sometimes due to priming,
sometimes to insufficient adjustment—are everywhere. The psychological mechanisms
thatproduceanchoringmakeusfarmoresuggestiblethanmostofuswouldwanttobe.
And of course there are quite a few people who are willing and able to exploit our
gullibility.
Anchoring effects explain why, for example, arbitrary rationing is an effective
marketingploy.Afewyearsago,supermarketshoppersinSiouxCity,Iowa,encountereda
salespromotionforCampbell’ssoupatabout10%offtheregularprice.Onsomedays,a
sign on the shelf said limit of 12 per person. On other days, the sign said no limit per
person.Shopperspurchasedan average of7canswhen thelimitwasinforce, twice as
manyastheyboughtwhenthelimitwasremoved.Anchoringisnotthesoleexplanation.
Rationingalsoimpliesthatthegoodsareflyingofftheshelves,andshoppersshouldfeel
some urgency about stocking up. But we also know that the mention of 12 cans as a
possible purchase would produce anchoring even if the number were produced by a
roulettewheel.
Weseethesamestrategyatworkinthenegotiationoverthepriceofahome,when
thesellermakesthefirstmovebysettingthelistprice.Asinmanyothergames,moving
first is an advantage in single-issue negotiations—for example, when price is the only
issue to be settled between a buyer and a seller. As you may have experienced when
negotiating for the first time in a bazaar, the initial anchor has a powerful effect. My
advicetostudentswhenItaughtnegotiationswasthatifyouthinktheothersidehasmade
an outrageous proposal, you should not come back with an equally outrageous
counteroffer,creatingagapthatwillbedifficulttobridgeinfurthernegotiations.Instead
youshouldmakeascene,stormoutorthreatentodoso,andmakeitclear—toyourselfas
wellastotheotherside—thatyouwillnotcontinuethenegotiationwiththatnumberon
thetable.
The psychologists Adam Galinsky and Thomas Mussweiler proposed more subtle
ways to resist the anchoring effect in negotiations. They instructed negotiators to focus
theirattentionandsearchtheirmemoryforargumentsagainsttheanchor.Theinstruction
to activate System 2 was successful. For example, the anchoring effect is reduced or
eliminated when the second mover focuses his attention on the minimal offer that the
opponentwouldaccept,oronthecoststotheopponentoffailingtoreachanagreement.
In general, a strategy of deliberately “thinking the opposite” may be a good defense
against anchoring effects, because it negates the biased recruitment of thoughts that
producestheseeffects.
Finally,tryyourhandatworkingouttheeffectofanchoringonaproblemofpublic
policy: the size of damages in personal injury cases. These awards are sometimes very
large.Businessesthatarefrequenttargetsofsuchlawsuits,suchashospitalsandchemical
companies, have lobbied to set a cap on the awards. Before you read this chapter you
might have thought that capping awards is certainly good for potential defendants, but
nowyoushouldnotbesosure.Considertheeffectofcappingawardsat$1million.This
rulewouldeliminatealllargerawards,buttheanchorwouldalsopullupthesizeofmany
awardsthatwouldotherwise be muchsmaller.It would almostcertainlybenefitserious
offendersandlargefirmsmuchmorethansmallones.
AnchoringandtheTwoSystems
TheeffectsofrandomanchorshavemuchtotellusabouttherelationshipbetweenSystem
1 and System 2. Anchoring effects have always been studied in tasks of judgment and
choicethatareultimatelycompletedbySystem2.However,System2worksondatathat
isretrievedfrommemory,inanautomaticandinvoluntaryoperationofSystem1.System
2isthereforesusceptibletothebiasinginfluenceofanchorsthatmakesomeinformation
easiertoretrieve.Furthermore,System2hasnocontrolovertheeffectandnoknowledge
of it. The participants who have been exposed to random or absurd anchors (such as
Gandhi’sdeathatage144)confidentlydenythatthisobviouslyuselessinformationcould
haveinfluencedtheirestimate,andtheyarewrong.
We saw in the discussion of the law of small numbers that a message, unless it is
immediately rejected as a lie, will have the same effect on the associative system
regardless of its reliability. The gist of the message is the story, which is based on
whateverinformationisavailable,evenifthequantityoftheinformationisslightandits
qualityispoor:WYSIATI.Whenyoureadastoryabouttheheroicrescueofawounded
mountainclimber,itseffectonyourassociativememoryismuchthesameifitisanews
report or the synopsis of a film. Anchoring results from this associative activation.
Whether the story is true, or believable, matters little, if at all. The powerful effect of
random anchors is an extreme case of this phenomenon, because a random anchor
obviouslyprovidesnoinformationatall.
EarlierIdiscussedthebewilderingvarietyofprimingeffects,inwhichyourthoughts
andbehaviormaybeinfluencedbystimulitowhichyoupaynoattentionatall,andeven
bystimuliofwhichyouarecompletelyunaware.Themainmoralofprimingresearchis
thatourthoughtsandourbehaviorareinfluenced,muchmorethanweknoworwant,by
the environment of the moment. Many people find the priming results unbelievable,
because they do not correspond to subjective experience. Many others find the results
upsetting, because they threaten the subjective sense of agency and autonomy. If the
content of a screen saver on an irrelevant computer can affect your willingness to help
strangers without your being aware of it, how free are you? Anchoring effects are
threateninginasimilarway.Youarealwaysawareoftheanchorandevenpayattentionto
it,butyoudonotknowhowitguidesandconstrainsyourthinking,becauseyoucannot
imagine how you would have thought if the anchor had been different (or absent).
However,youshouldassumethatanynumberthatisonthetablehashadananchoring
effectonyou,andifthestakesarehighyoushouldmobilizeyourself(yourSystem2)to
combattheeffect.
SpeakingofAnchors
“The firm we want to acquire sent us their business plan, with the revenue they
expect.Weshouldn’tletthatnumberinfluenceourthinking.Setitaside.”
“Plans are best-case scenarios. Let’s avoid anchoring on plans when we forecast
actualoutcomes.Thinkingaboutwaystheplancouldgowrongisonewaytodoit.”
“Ouraiminthenegotiationistogetthemanchoredonthisnumber.”
&st
“The defendant’s lawyers put in a frivolous reference in which they mentioned a
ridiculouslylowamountofdamages,andtheygotthejudgeanchoredonit!”
P
TheScienceofAvailability
AmosandIhadourmostproductiveyearin1971–72,whichwespentinEugene,Oregon.
WeweretheguestsoftheOregonResearchInstitute,whichhousedseveralfuturestarsof
allthefieldsinwhichweworked—judgment,decisionmaking,andintuitiveprediction.
Our main host was Paul Slovic, who had been Amos’s classmate at Ann Arbor and
remained a lifelong friend. Paul was on his way to becoming the leading psychologist
amongscholarsofrisk,apositionhehasheldfordecades,collectingmanyhonorsalong
theway.Paulandhiswife,Roz,introducedustolifeinEugene,andsoonweweredoing
whatpeopleinEugenedo—jogging,barbecuing,andtakingchildrentobasketballgames.
We also worked very hard, running dozens of experiments and writing our articles on
judgmentheuristics.AtnightIwroteAttentionandEffort.Itwasabusyyear.
One of our projects was the study of what we called the availability heuristic. We
thoughtofthatheuristicwhenweaskedourselveswhatpeopleactuallydowhentheywish
toestimatethefrequencyofacategory,suchas“peoplewhodivorceaftertheageof60”
or “dangerous plants.” The answer was straightforward: instances of the class will be
retrievedfrommemory,andifretrievaliseasyandfluent,thecategorywillbejudgedto
belarge.Wedefinedtheavailabilityheuristicastheprocessofjudgingfrequencyby“the
ease with which instances come to mind.” The statement seemed clear when we
formulatedit,buttheconceptofavailabilityhasbeenrefinedsincethen.Thetwo-system
approachhadnotyetbeendevelopedwhenwestudiedavailability,andwedidnotattempt
to determine whether this heuristic is a deliberate problem-solving strategy or an
automaticoperation.Wenowknowthatbothsystemsareinvolved.
Aquestionweconsideredearlywashowmanyinstancesmustberetrievedtogetan
impressionoftheeasewithwhichtheycometomind.Wenowknowtheanswer:none.
Foranexample,thinkofthenumberofwordsthatcanbeconstructedfromthetwosetsof
lettersbelow.
XUZONLCJM
TAPCERHOB
You knew almost immediately, without generating any instances, that one set offers far
morepossibilitiesthantheother,probablybyafactorof10ormore.Similarly,youdonot
needtoretrievespecificnewsstoriestohaveagoodideaoftherelativefrequencywith
whichdifferentcountrieshaveappearedinthenewsduringthepastyear(Belgium,China,
France,Congo,Nicaragua,Romania…).
Theavailabilityheuristic,likeotherheuristicsofjudgment,substitutesonequestion
foranother:youwishtoestimatethesizeseostcdofacategoryorthefrequencyofan
event, but you report an impression of the ease with which instances come to mind.
Substitutionofquestionsinevitablyproducessystematicerrors.Youcandiscoverhowthe
heuristicleadstobiasesbyfollowingasimpleprocedure:listfactorsotherthanfrequency
thatmakeiteasytocomeupwithinstances.Eachfactorinyourlistwillbeapotential
sourceofbias.Herearesomeexamples:
A salient event that attracts your attention will be easily retrieved from memory.
Divorces among Hollywood celebrities and sex scandals among politicians attract
muchattention,andinstanceswillcomeeasilytomind.Youarethereforelikelyto
exaggeratethefrequencyofbothHollywooddivorcesandpoliticalsexscandals.
Adramaticeventtemporarilyincreasestheavailabilityofitscategory.Aplanecrash
thatattractsmediacoveragewilltemporarilyalteryourfeelingsaboutthesafetyof
flying.Accidentsareonyourmind,forawhile,afteryouseeacarburningattheside
oftheroad,andtheworldisforawhileamoredangerousplace.
Personalexperiences,pictures,andvividexamplesaremoreavailablethanincidents
thathappenedtoothers,ormerewords,orstatistics.Ajudicialerrorthataffectsyou
willundermineyourfaithinthejusticesystemmorethanasimilarincidentyouread
aboutinanewspaper.
Resistingthislargecollectionofpotentialavailabilitybiasesispossible,buttiresome.
You must make the effort to reconsider your impressions and intuitions by asking such
questions as, “Is our belief that theft s by teenagers are a major problem due to a few
recentinstancesinourneighborhood?”or“CoulditbethatIfeelnoneedtogetaflushot
because none of my acquaintances got the flu last year?” Maintaining one’s vigilance
againstbiasesisachore—butthechancetoavoidacostlymistakeissometimesworththe
effort.
One of the best-known studies of availability suggests that awareness of your own
biases can contribute to peace in marriages, and probably in other joint projects. In a
famousstudy,spouseswereasked,“Howlargewasyourpersonalcontributiontokeeping
theplacetidy,inpercentages?”They also answeredsimilarquestionsabout “taking out
thegarbage,”“initiatingsocialengagements,”etc.Wouldtheself-estimatedcontributions
addupto100%,ormore,orless?Asexpected,theself-assessedcontributionsaddedupto
morethan 100%.The explanation isa simpleavailabilitybias: both spouses remember
theirownindividualeffortsandcontributionsmuchmoreclearlythanthoseoftheother,
andthedifferenceinavailabilityleadstoadifferenceinjudgedfrequency.Thebiasisnot
necessarilyself-serving:spousesalsooverestimatedtheircontributiontocausingquarrels,
althoughtoasmallerextentthantheircontributionstomoredesirableoutcomes.Thesame
biascontributestothecommonobservationthatmanymembersofacollaborativeteam
feeltheyhavedonemorethantheirshareandalsofeelthattheothersarenotadequately
gratefulfortheirindividualcontributions.
Iam generally notoptimisticabout thepotentialfor personal controlof biases, but
this is an exception. The opportunity for successful debiasing exists because the
circumstancesinwhichissuesofcreditallocationcomeupareeasytoidentify,themore
sobecausetensionsoftenarisewhenseveralpeopleatoncefeelthattheireffortsarenot
adequatelyrecognized.Themereobservationthatthereisusuallymorethan100%credit
togoaroundissometimessufficienttodefusethesituation.Inanyeve#82ght=nt,itisa
good thing for every individual to remember. You will occasionally do more than your
share, but it is useful to know that you are likely to have that feeling even when each
memberoftheteamfeelsthesameway.
ThePsychologyofAvailability
Amajor advancein theunderstanding ofthe availabilityheuristic occurredin theearly
1990s, when a group of German psychologists led by Norbert Schwarz raised an
intriguing question: How will people’s impressions of the frequency of a category be
affected by a requirement to list a specified number of instances? Imagine yourself a
subjectinthatexperiment:
First,listsixinstancesinwhichyoubehavedassertively.
Next,evaluatehowassertiveyouare.
Imagine that you had been asked for twelve instances of assertive behavior (a number
mostpeoplefinddifficult).Wouldyourviewofyourownassertivenessbedifferent?
Schwarzandhiscolleaguesobservedthatthetaskoflistinginstancesmayenhance
thejudgmentsofthetraitbytwodifferentroutes:
thenumberofinstancesretrieved
theeasewithwhichtheycometomind
Therequesttolisttwelveinstancespitsthetwodeterminantsagainsteachother.Onthe
one hand, you have just retrieved an impressive number of cases in which you were
assertive. On the other hand, while the first three or four instances of your own
assertivenessprobablycameeasilytoyou,youalmostcertainlystruggledtocomeupwith
thelastfewtocompleteasetoftwelve;fluencywaslow. Which will count more—the
amountretrievedortheeaseandfluencyoftheretrieval?
Thecontestyieldeda clear-cutwinner:peoplewhohad justlistedtwelveinstances
rated themselves as less assertive than people who had listed only six. Furthermore,
participants who had been asked to list twelve cases in which they had not behaved
assertivelyendedupthinkingofthemselvesasquiteassertive!Ifyoucannoteasilycome
upwithinstancesofmeekbehavior,youarelikelytoconcludethatyouarenotmeekat
all.Self-ratingsweredominatedbytheeasewithwhichexampleshadcometomind.The
experienceoffluentretrievalofinstancestrumpedthenumberretrieved.
An even more direct demonstration of the role of fluency was offered by other
psychologists in the same group. All the participants in their experiment listed six
instances of assertive (or nonassertive) behavior, while maintaining a specified facial
expression.“Smilers”wereinstructedtocontractthezygomaticusmuscle,whichproduces
a light smile; “frowners” were required to furrow their brow. As you already know,
frowningnormallyaccompaniescognitivestrainandtheeffectissymmetric:whenpeople
areinstructedtofrownwhiledoingatask,theyactuallytryharderandexperiencegreater
cognitivestrain.Theresearchersanticipatedthatthefrownerswouldhavemoredifficulty
retrievingexamplesofassertivebehaviorandwouldthereforeratethemselvesasrelatively
lackinginassertiveness.Andsoitwas.
Psychologists enjoy experiments that yield paradoxical results, and they have appliserv
heightedSchwarz’sdiscoverywithgusto.Forexample,people:
believe that they use their bicycles less often after recalling many rather than few
instances
are less confident in a choice when they are asked to produce more arguments to
supportit
arelessconfidentthataneventwasavoidableafterlistingmorewaysitcouldhave
beenavoided
arelessimpressedbyacarafterlistingmanyofitsadvantages
A professor at UCLA found an ingenious way to exploit the availability bias. He
askeddifferentgroupsofstudentstolistwaystoimprovethecourse,andhevariedthe
required number of improvements. As expected, the students who listed more ways to
improvetheclassratedithigher!
Perhapsthemostinterestingfindingofthisparadoxicalresearchisthattheparadoxis
notalwaysfound:peoplesometimesgobycontentratherthanbyeaseofretrieval.The
proofthatyoutrulyunderstandapatternofbehavioristhatyouknowhowtoreverseit.
Schwarz and his colleagues took on this challenge of discovering the conditions under
whichthisreversalwouldtakeplace.
Theeasewithwhichinstancesofassertivenesscometothesubject’smindchanges
duringthetask.Thefirstfewinstancesareeasy,butretrievalsoonbecomesmuchharder.
Of course, the subject also expects fluency to drop gradually, but the drop of fluency
betweensixandtwelveinstancesappearstobesteeperthantheparticipantexpected.The
results suggest that the participants make an inference: if I am having so much more
troublethanexpectedcomingupwithinstancesofmyassertiveness,thenIcan’tbevery
assertive.Notethatthisinferencerestsonasurprise—fluencybeingworsethanexpected.
The availability heuristic that the subjects apply is better described as an “unexplained
unavailability”heuristic.
Schwarz and his colleagues reasoned that they could disrupt the heuristic by
providing the subjects with an explanation for the fluency of retrieval that they
experienced.Theytoldtheparticipantstheywouldhearbackgroundmusicwhilerecalling
instancesandthatthemusicwouldaffectperformanceinthememorytask.Somesubjects
weretoldthat the musicwouldhelp, others weretoldto expect diminishedfluency. As
predicted, participants whose experience of fluency was “explained” did not use it as a
heuristic;thesubjectswhoweretoldthatmusicwouldmakeretrievalmoredifficultrated
themselves as equally assertive when they retrieved twelve instances as when they
retrievedsix.Othercoverstorieshavebeenusedwiththesameresult:judgmentsareno
longerinfluencedbyeaseofretrievalwhentheexperienceoffluencyisgivenaspurious
explanationbythepresenceofcurvedorstraighttextboxes,bythebackgroundcolorof
thescreen,orbyotherirrelevantfactorsthattheexperimentersdreamedup.
AsIhavedescribedit,theprocessthatleadstojudgmentbyavailabilityappearsto
involve a complex chain of reasoning. The subjects have an experience of diminishing
fluency as they produce instances. They evidently have expectations about the rate at
whichfluencydecreases,and thoseexpectationsarewrong: the difficultyofcomingup
with new instances increases more rapidly than they expect. It is the unexpectedly low
fluencythatcausespeoplewhowereaskedfortwelveinstancestodescribethemselvesas
unassertive. When the surprise is eliminated, low fluency no longer influences the
judgment.Theprocessappearstoconsistofasophisticatedriethesubjsetofinferences.Is
theautomaticSystem1capableofit?
Theansweristhatinfactnocomplexreasoningisneeded.Amongthebasicfeatures
ofSystem1isitsabilitytosetexpectationsandtobesurprisedwhentheseexpectations
areviolated.Thesystemalsoretrievespossiblecausesofasurprise,usuallybyfindinga
possiblecauseamongrecentsurprises.Furthermore,System2canresettheexpectations
ofSystem1onthefly,sothataneventthatwouldnormallybesurprisingisnowalmost
normal.Supposeyouaretoldthatthethree-year-oldboywholivesnextdoorfrequently
wearsatophatinhisstroller.Youwillbefarlesssurprisedwhenyouactuallyseehim
withhistophatthanyouwouldhavebeenwithoutthewarning.InSchwarz’sexperiment,
thebackgroundmusichasbeenmentionedasapossiblecauseofretrievalproblems.The
difficultyofretrievingtwelveinstancesisnolongerasurpriseandthereforeislesslikely
tobeevokedbythetaskofjudgingassertiveness.
Schwarzandhiscolleaguesdiscoveredthatpeoplewhoarepersonallyinvolvedinthe
judgmentaremorelikelytoconsiderthenumberofinstancestheyretrievefrommemory
andlesslikelytogobyfluency.Theyrecruitedtwogroupsofstudentsforastudyofrisks
to cardiac health. Half the students had a family history of cardiac disease and were
expectedtotakethetaskmoreseriouslythantheothers,whohadnosuchhistory.Allwere
askedtorecalleitherthreeoreightbehaviorsintheirroutinethatcouldaffecttheircardiac
health (some were asked for risky behaviors, others for protective behaviors). Students
with no family history of heart disease were casual about the task and followed the
availability heuristic. Students who found it difficult to find eight instances of risky
behaviorfeltthemselvesrelativelysafe,andthosewhostruggledtoretrieveexamplesof
safebehaviorsfeltthemselvesatrisk.Thestudentswithafamilyhistoryofheartdisease
showedtheoppositepattern—theyfeltsaferwhentheyretrievedmanyinstancesofsafe
behavior and felt greater danger when they retrieved many instances of risky behavior.
They were also more likely to feel that their future behavior would be affected by the
experienceofevaluatingtheirrisk.
The conclusion is that the ease with which instances come to mind is a System 1
heuristic, which is replaced by a focus on content when System 2 is more engaged.
Multiplelinesofevidenceconvergeontheconclusionthatpeoplewholetthemselvesbe
guidedbySystem1aremorestronglysusceptibletoavailabilitybiasesthanotherswho
areinastateofhighervigilance.Thefollowingaresomeconditionsinwhichpeople“go
withtheflow”andareaffectedmorestronglybyeaseofretrievalthanbythecontentthey
retrieved:
whentheyareengagedinanothereffortfultaskatthesametime
whentheyareinagoodmoodbecausetheyjustthoughtofahappyepisodeintheir
life
iftheyscorelowonadepressionscale
iftheyareknowledgeablenovicesonthetopicofthetask,incontrasttotrueexperts
whentheyscorehighonascaleoffaithinintuition
iftheyare(oraremadetofeel)powerful
Ifindthelastfindingparticularlyintriguing.Theauthorsintroducetheirarticlewitha
famousquote:“Idon’tspendalotoftimetakingpollsaroundtheworldtotellmewhatI
thinkistherightwaytoact.I’vejustgottoknowhowIfeel”(GeorgeeethewW.Bush,
November 2002). They go on to show that reliance on intuition is only in part a
personalitytrait.Merelyremindingpeopleofatimewhentheyhadpowerincreasestheir
apparenttrustintheirownintuition.
SpeakingofAvailability
“Becauseofthecoincidenceoftwoplanescrashinglastmonth,shenowprefersto
takethetrain.That’ssilly.Theriskhasn’treallychanged;itisanavailabilitybias.”
“Heunderestimatestherisksofindoorpollutionbecausetherearefewmediastories
onthem.That’sanavailabilityeffect.Heshouldlookatthestatistics.”
“Shehasbeenwatchingtoomanyspymoviesrecently,soshe’sseeingconspiracies
everywhere.”
“TheCEOhashadseveralsuccessesinarow,sofailuredoesn’tcomeeasilytoher
mind.Theavailabilitybiasismakingheroverconfident.”
P
Availability,Emotion,andRisk
Students of risk were quick to see that the idea of availability was relevant to their
concerns.Evenbeforeourworkwaspublished,theeconomistHowardKunreuther,who
was then in the early stages of a career that he has devoted to the study of risk and
insurance,noticedthatavailabilityeffectshelpexplainthepatternofinsurancepurchase
andprotectiveactionafterdisasters.Victimsandnearvictimsareveryconcernedaftera
disaster. After each significant earthquake, Californians are for a while diligent in
purchasinginsuranceandadoptingmeasuresofprotectionandmitigation.Theytiedown
their boiler to reduce quake damage, seal their basement doors against floods, and
maintainemergency supplies in goodorder.However, the memories of the disaster dim
over time, and so do worry and diligence. The dynamics of memory help explain the
recurrent cycles of disaster, concern, and growing complacency that are familiar to
studentsoflarge-scaleemergencies.
Kunreuther also observed that protective actions, whether by individuals or
governments, are usually designed to be adequate to the worst disaster actually
experienced.AslongagoaspharaonicEgypt,societieshavetrackedthehigh-watermark
of rivers that periodically flood—and have always prepared accordingly, apparently
assumingthatfloodswillnotrisehigherthantheexistinghigh-watermark.Imagesofa
worsedisasterdonotcomeeasilytomind.
AvailabilityandAffect
The most influential studies of availability biases were carried out by our friends in
Eugene,wherePaulSlovicandhislongtimecollaboratorSarahLichtensteinwerejoined
by our former student Baruch Fischhoff. They carried out groundbreaking research on
publicperceptionsofrisks,includingasurveythathasbecomethestandardexampleofan
availability bias. They asked participants in their survey to siIs th t#consider pairs of
causesofdeath:diabetesandasthma,orstrokeandaccidents.Foreachpair,thesubjects
indicated the more frequent cause and estimated the ratio of the two frequencies. The
judgments were compared to health statistics of the time. Here’s a sample of their
findings:
Strokes cause almost twice as many deaths as all accidents combined, but 80% of
respondentsjudgedaccidentaldeathtobemorelikely.
Tornadoeswereseenasmorefrequentkillersthanasthma,althoughthelattercause
20timesmoredeaths.
Deathbylightningwasjudgedlesslikelythandeathfrombotulismeventhoughitis
52timesmorefrequent.
Deathbydiseaseis18timesaslikelyasaccidentaldeath,butthetwowerejudged
aboutequallylikely.
Deathbyaccidentswasjudgedtobemorethan300timesmorelikelythandeathby
diabetes,butthetrueratiois1:4.
The lesson is clear: estimates of causes of death are warped by media coverage. The
coverageisitselfbiasedtowardnoveltyandpoignancy.Themediadonotjustshapewhat
the public is interested in, but also are shaped by it. Editors cannot ignore the public’s
demands that certain topics and viewpoints receive extensive coverage. Unusual events
(suchasbotulism)attractdisproportionateattentionandareconsequentlyperceivedasless
unusualthantheyreallyare.Theworldinourheadsisnotaprecisereplicaofreality;our
expectationsaboutthefrequencyofeventsaredistortedbytheprevalenceandemotional
intensityofthemessagestowhichweareexposed.
Theestimatesofcausesofdeathareanalmostdirectrepresentationoftheactivation
ofideasinassociativememory,andareagoodexampleofsubstitution.ButSlovicandhis
colleagueswereledtoadeeperinsight:theysawthattheeasewithwhichideasofvarious
risks come to mind and the emotional reactions to these risks are inextricably linked.
Frighteningthoughtsandimagesoccurtouswithparticularease,andthoughtsofdanger
thatarefluentandvividexacerbatefear.
Asmentionedearlier,Sloviceventuallydevelopedthenotionofanaffectheuristic,in
whichpeoplemakejudgmentsanddecisionsbyconsultingtheiremotions:DoIlikeit?Do
Ihateit?HowstronglydoIfeelaboutit?Inmanydomainsoflife,Slovicsaid,people
form opinions and make choices that directly express their feelings and their basic
tendencytoapproachoravoid,oftenwithoutknowingthattheyaredoingso.Theaffect
heuristicisaninstanceofsubstitution,inwhichtheanswertoaneasyquestion(HowdoI
feelaboutit?)servesasananswertoamuchharderquestion(WhatdoIthinkaboutit?).
Slovic and his colleagues related their views to the work of the neuroscientist Antonio
Damasio, who had proposed that people’s emotional evaluations of outcomes, and the
bodilystatesandtheapproachandavoidancetendenciesassociatedwiththem,allplaya
centralroleinguidingdecisionmaking.Damasioandhiscolleagueshaveobservedthat
people who do not display the appropriate emotions before they decide, sometimes
because of brain damage, also have an impaired ability to make good decisions. An
inabilitytobeguidedbya“healthyfear”ofbadconsequencesisadisastrousflaw.
In a compelling demonstration of the workings of the affect heuristic, Slovic’s
researchteamsurveyedopinionsaboutvarioustechnologies,includingwaterfluoridation,
chemicalplants,foodpreservatives,andcars,andaskedtheirrespondentstolistboththe
benefits>
The best part of the experiment came next. After completing the initial survey, the
respondents read brief passages with arguments in favor of various technologies. Some
were given arguments that focused on the numerous benefits of a technology; others,
arguments that stressed the low risks. These messages were effective in changing the
emotional appeal of the technologies. The striking finding was that people who had
receivedamessageextollingthebenefitsofatechnologyalsochangedtheirbeliefsabout
itsrisks.Althoughtheyhadreceivednorelevantevidence,thetechnologytheynowliked
morethanbeforewasalsoperceivedaslessrisky.Similarly,respondentswhoweretold
only that the risks of a technology were mild developed a more favorable view of its
benefits. The implication is clear: as the psychologist Jonathan Haidt said in another
context, “The emotional tail wags the rational dog.” The affect heuristic simplifies our
livesbycreatingaworldthatismuchtidierthanreality.Goodtechnologieshavefewcosts
intheimaginaryworldweinhabit,badtechnologieshavenobenefits,andalldecisionsare
easy. In the real world, of course, we often face painful tradeoffs between benefits and
costs.
ThePublicandtheExperts
PaulSlovicprobablyknowsmoreaboutthepeculiaritiesofhumanjudgmentofriskthan
any other individual. His work offers a picture of Mr. and Ms. Citizen that is far from
flattering:guidedbyemotionratherthanbyreason,easilyswayedbytrivialdetails,and
inadequatelysensitivetodifferencesbetweenlowandnegligiblylowprobabilities.Slovic
hasalsostudiedexperts,whoareclearlysuperiorindealingwithnumbersandamounts.
Expertsshowmanyofthesamebiasesastherestofusinattenuatedform,butoftentheir
judgmentsandpreferencesaboutrisksdivergefromthoseofotherpeople.
Differences between experts and the public are explained in part by biases in lay
judgments, but Slovic draws attention to situations in which the differences reflect a
genuineconflictofvalues.Hepointsoutthatexpertsoftenmeasurerisksbythenumberof
lives(or life-years)lost,while thepublic draws finer distinctions, forexample between
“gooddeaths”and“baddeaths,”orbetweenrandomaccidentalfatalitiesanddeathsthat
occurinthecourseofvoluntaryactivitiessuchasskiing.Theselegitimatedistinctionsare
oftenignoredinstatisticsthatmerelycountcases.Slovicarguesfromsuchobservations
that the public has a richer conception of risks than the experts do. Consequently, he
strongly resists the view that the experts should rule, and that their opinions shouldbe
accepted without question when they conflict with the opinions and wishes of other
citizens. When experts and the public disagree on their priorities, he says, “Each side
muiesstrespecttheinsightsandintelligenceoftheother.”
Inhisdesiretowrestsolecontrolofriskpolicyfromexperts,Slovichaschallenged
thefoundationoftheirexpertise:theideathatriskisobjective.
“Risk”doesnotexist“outthere,”independentofourmindsandculture,waitingtobe
measured. Human beings have invented the concept of “risk” to help them
understand and cope with the dangers and uncertainties of life. Although these
dangersarereal,thereisnosuchthingas“realrisk”or“objectiverisk.”
Toillustratehisclaim,Sloviclistsninewaysofdefiningthemortalityriskassociated
withthereleaseofatoxicmaterialintotheair,rangingfrom“deathpermillionpeople”to
“deathpermilliondollarsofproductproduced.”Hispointisthattheevaluationoftherisk
depends on the choice of a measure—with the obvious possibility that the choice may
havebeenguidedbyapreferenceforoneoutcomeoranother.Hegoesontoconcludethat
“definingriskisthusanexerciseinpower.”Youmightnothaveguessedthatonecanget
to such thorny policy issues from experimental studies of the psychology of judgment!
However, policy is ultimately about people, what they want and what is best for them.
Everypolicyquestioninvolvesassumptionsabouthumannature,inparticularaboutthe
choicesthatpeoplemaymakeandtheconsequencesoftheirchoicesforthemselvesand
forsociety.
AnotherscholarandfriendwhomIgreatlyadmire,CassSunstein,disagreessharply
withSlovic’sstanceonthedifferentviewsofexpertsandcitizens,anddefendstheroleof
experts as a bulwark against “populist” excesses. Sunstein is one of the foremost legal
scholarsintheUnitedStates,andshareswithotherleadersofhisprofessiontheattribute
ofintellectualfearlessness.Heknowshecanmasteranybodyofknowledgequicklyand
thoroughly, and he has mastered many, including both the psychology of judgment and
choice and issues of regulation and risk policy. His view is that the existing system of
regulation in the United States displays a very poor setting of priorities, which reflects
reaction to public pressures more than careful objective analysis. He starts from the
positionthatriskregulationandgovernmentinterventiontoreducerisksshouldbeguided
byrationalweightingofcostsandbenefits,andthatthenaturalunitsforthisanalysisare
thenumberoflivessaved(orperhapsthenumberoflife-yearssaved,whichgivesmore
weight to saving the young) and the dollar cost to the economy. Poor regulation is
wastefuloflivesandmoney,bothofwhichcanbemeasuredobjectively.Sunsteinhasnot
beenpersuadedbySlovic’sargumentthatriskanditsmeasurementissubjective.Many
aspectsofriskassessment are debatable,buthehas faith in theobjectivitythatmaybe
achievedbyscience,expertise,andcarefuldeliberation.
Sunstein came to believe that biased reactions to risks are an important source of
erraticandmisplacedprioritiesinpublicpolicy.Lawmakersandregulatorsmaybeoverly
responsivetotheirrationalconcernsofcitizens,bothbecauseofpoliticalsensitivityand
becausetheyarepronetothesamecognitivebiasesasothercitizens.
Sunstein and a collaborator, the jurist Timur Kuran, invented a name for the
mechanism through which biases flow into policy: the availability cascade. They
commentthatinthesocialcontext,“allheuristicsareequal,butavailabilityismoreequal
than the others.” They have in mind an expand Uned notion of the heuristic, in which
availability provides a heuristic for judgments other than frequency. In particular, the
importanceofanideaisoftenjudgedbythefluency(andemotionalcharge)withwhich
thatideacomestomind.
An availability cascade is a self-sustaining chain of events, which may start from
media reports of a relatively minor event and lead up to public panic and large-scale
governmentaction.Onsomeoccasions,amediastoryaboutariskcatchestheattentionof
a segment of the public, which becomes aroused and worried. This emotional reaction
becomes a story in itself, prompting additional coverage in the media, which in turn
produces greater concern and involvement. The cycle is sometimes sped along
deliberately by “availability entrepreneurs,” individuals or organizations who work to
ensureacontinuousflowofworryingnews.Thedangerisincreasinglyexaggeratedasthe
mediacompeteforattention-grabbingheadlines.Scientistsandotherswhotrytodampen
the increasing fear and revulsion attract little attention, most of it hostile: anyone who
claimsthatthedangerisoverstatedissuspectedofassociationwitha“heinouscover-up.”
The issue becomes politically important because it is on everyone’s mind, and the
response of the political system is guided by the intensity of public sentiment. The
availability cascade has now reset priorities. Other risks, and other ways that resources
couldbeappliedforthepublicgood,allhavefadedintothebackground.
Kuran and Sunstein focused on two examples that are still controversial: the Love
Canalaffairandtheso-calledAlarscare.InLoveCanal,buriedtoxicwastewasexposed
duringarainyseasonin1979,causingcontaminationofthewaterwellbeyondstandard
limits,aswellasafoulsmell.Theresidentsofthecommunitywereangryandfrightened,
andoneofthem,LoisGibbs,wasparticularlyactiveinanattempttosustaininterestinthe
problem.Theavailabilitycascade unfolded according tothe standard script.At its peak
thereweredailystoriesaboutLoveCanal,scientistsattemptingtoclaimthatthedangers
were overstated were ignored or shouted down, ABC News aired a program titled The
KillingGround,andemptybaby-sizecoffinswereparadedinfrontofthelegislature.A
largenumberofresidentswererelocatedatgovernmentexpense,andthecontroloftoxic
wastebecamethemajorenvironmentalissueofthe1980s.Thelegislationthatmandated
thecleanupoftoxicsites,calledCERCLA,establishedaSuperfundandisconsidereda
significant achievement of environmental legislation. It was also expensive, and some
haveclaimedthatthesameamountofmoneycouldhavesavedmanymorelivesifithad
beendirectedtootherpriorities.OpinionsaboutwhatactuallyhappenedatLoveCanalare
still sharply divided, and claims of actual damage to health appear not to have been
substantiated. Kuran and Sunstein wrote up the Love Canal story almost as a pseudo-
event, while on the other side of the debate, environmentalists still speak of the “Love
Canaldisaster.”
Opinions are also divided on the second example Kuran and Sunstein used to
illustratetheirconceptofanavailabilitycascade,theAlarincident,knowntodetractorsof
environmentalconcernsasthe“Alarscare”of1989.Alarisachemicalthatwassprayed
on apples to regulate their growth and improve their appearance. The scare began with
press stories that the chemical, when consumed in gigantic doses, caused cancerous
tumorsinratsandmice.Thestoriesunderstandablyfrightenedthepublic,andthosefears
encouraged more media coverage, the basic mechanism of an availability cascade. The
topicdominatedthenewsandproduceddramaticmediaeventssuchasthetestimonyof
theactressMerylStreepbeforeCongress.Theappleindustrysuofstainedlargelossesas
applesandappleproductsbecameobjectsoffear.KuranandSunsteinquoteacitizenwho
calledintoask“whetheritwassafertopourapplejuicedownthedrainortotakeittoa
toxic waste dump.” The manufacturer withdrew the product and the FDA banned it.
Subsequent research confirmed that the substance might pose a very small risk as a
possible carcinogen, but the Alar incident was certainly an enormous overreaction to a
minorproblem.Theneteffectoftheincidentonpublichealthwasprobablydetrimental
becausefewergoodappleswereconsumed.
TheAlartaleillustratesabasiclimitationintheabilityofourmindtodealwithsmall
risks: we either ignore them altogether or give them far too much weight—nothing in
between.Everyparentwhohasstayedupwaitingforateenagedaughterwhoislatefrom
apartywillrecognizethefeeling.Youmayknowthatthereisreally(almost)nothingto
worryabout,butyoucannothelpimagesofdisasterfromcomingtomind.AsSlovichas
argued,theamountofconcernisnotadequatelysensitivetotheprobabilityofharm;you
are imagining the numerator—the tragic story you saw on the news—and not thinking
aboutthedenominator. Sunsteinhascoined the phrase“probabilityneglect” todescribe
the pattern. The combination of probability neglect with the social mechanisms of
availability cascades inevitably leads to gross exaggeration of minor threats, sometimes
withimportantconsequences.
Intoday’sworld,terroristsarethemostsignificantpractitionersoftheartofinducing
availability cascades. With a few horrible exceptions such as 9/11, the number of
casualties from terror attacks is very small relative to other causes of death. Even in
countriesthathavebeentargetsofintensiveterrorcampaigns,suchasIsrael,theweekly
number of casualties almost never came close to the number of traffic deaths. The
differenceisin theavailabilityof thetworisks, theease and thefrequency with which
theycometomind.Gruesomeimages,endlesslyrepeatedinthemedia,causeeveryoneto
be on edge. As I know from experience, it is difficult to reason oneself into a state of
completecalm.TerrorismspeaksdirectlytoSystem1.
WheredoIcomedowninthedebatebetweenmyfriends?Availabilitycascadesare
real and they undoubtedly distort priorities in the allocation of public resources. Cass
Sunstein would seek mechanisms that insulate decision makers from public pressures,
lettingthe allocationofresourcesbedeterminedbyimpartialexpertswhohaveabroad
view of all risks and of the resources available to reduce them. Paul Slovic trusts the
expertsmuch lessandthepublicsomewhatmorethanSunsteindoes,andhe pointsout
that insulating the experts from the emotions of the public produces policies that the
publicwillreject—animpossiblesituationinademocracy.Bothareeminentlysensible,
andIagreewithboth.
I share Sunstein’s discomfort with the influence of irrational fears and availability
cascadesonpublicpolicyinthedomainofrisk.However,IalsoshareSlovic’sbeliefthat
widespreadfears,eveniftheyareunreasonable,shouldnotbeignoredbypolicymakers.
Rational or not, fear is painful and debilitating, and policy makers must endeavor to
protectthepublicfromfear,notonlyfromrealdangers.
Slovicrightlystressestheresistanceofthepublictotheideaofdecisionsbeingmade
by unelected and unaccountable experts. Furthermore, availability cascades may have a
long-termbenefitbycallingattentiontoclassesofrisksandbyincreasingtheoverallsize
of the risk-reduction budget. The Love Canal incident may have caused excessive
resources to be allocated to the management of toxic betwaste, but it also had a more
general effect in raising the priority level of environmental concerns. Democracy is
inevitablymessy,inpartbecausetheavailabilityandaffectheuristicsthatguidecitizens’
beliefs and attitudes are inevitably biased, even if they generally point in the right
direction.Psychologyshouldinformthedesignofriskpoliciesthatcombinetheexperts’
knowledgewiththepublic’semotionsandintuitions.
SpeakingofAvailabilityCascades
“She’sravingaboutaninnovationthathaslargebenefitsandnocosts.Isuspectthe
affectheuristic.”
“This is an availability cascade: a nonevent that is inflated by the media and the
publicuntilitfillsourTVscreensandbecomesallanyoneistalkingabout.”
P
TomW’sSpecialty
Havealookatasimplepuzzle:
Tom W is a graduate student at the main university in your state. Please rank the
followingninefieldsofgraduatespecializationinorderofthelikelihoodthatTomW
is now a student in each of these fields. Use 1 for the most likely, 9 for the least
likely.
businessadministration
computerscience
engineering
humanitiesandeducation
law
medicine
libraryscience
physicalandlifesciences
socialscienceandsocialwork
Thisquestioniseasy,andyouknewimmediatelythattherelativesizeofenrollment
inthedifferentfieldsisthekeytoasolution.Sofarasyouknow,TomWwaspickedat
randomfromthegraduatestudentsattheuniversity,likeasinglemarbledrawnfroman
urn.Todecidewhetheramarbleismorelikelytoberedorgreen,youneedtoknowhow
manymarblesofeachcolorthereareintheurn.Theproportionofmarblesofaparticular
kind is called a base rate. Similarly, the base rate of humanities and education in this
problemistheproportionofstudentsofthatfieldamongallthegraduatestudents.Inthe
absenceofspecificinformationaboutTomW,youwillgobythebaseratesandguessthat
heismorelikelytobeenrolledinhumanitiesandeducationthanincomputerscienceor
libraryscience,becausetherearemorestudentsoverallinthehumanitiesandeducation
than in the other two fields. Using base-rate information is the obvious move when no
otherinformationisprovided.
Nextcomesataskthathasnothingtodowithbaserates.
ThefollowingisapersonalitysketchofTomWwrittenduringTom’ssenioryearin
high school by a psychologist, on the basis of psychological tests of uncertain
validity:
TomWisofhighintelligence,althoughlackingintruecreativity.Hehasaneedfor
order and clarity, and for neat and tidy systems in which every detail finds its
appropriateplace.Hiswritingisratherdullandmechanical,occasionallyenlivened
bysomewhatcornypunsandflashesofimaginationofthesci-fitype.Hehasastrong
drive for competence. He seems to have little feel and little sympathy for other
people,anddoesnotenjoyinteractingwithothers.Self-centered,henonethelesshas
adeepmoralsense.
Now please take a sheet of paper and rank the nine fields of specialization listed
belowbyhowsimilarthedescriptionofTomWistothetypicalgraduatestudentin
eachofthefollowingfields.Use1forthemostlikelyand9fortheleastlikely.
You will get more out of the chapter if you give the task a quick try; reading the
report on Tom W is necessary to make your judgments about the various graduate
specialties.
This question too is straightforward. It requires you to retrieve, or perhaps to
construct,astereotypeofgraduatestudentsinthedifferentfields.Whentheexperiment
was first conducted, in the early 1970s, the average ordering was as follows. Yours is
probablynotverydifferent:
1. computerscience
2. engineering
3. businessadministration
4. physicalandlifesciences
5. libraryscience
6. law
7. medicine
8. humanitiesandeducation
9. socialscienceandsocialwork
You probably ranked computer science among the best fitting because of hints of
nerdiness (“corny puns”). In fact, the description of Tom W was written to fit that
stereotype.Anotherspecialtythatmostpeoplerankedhighisengineering(“neatandtidy
systems”).Youprobablythought thatTomWisnot a goodfitwith yourideaof social
scienceandsocialwork (“littlefeelandlittlesympathy for otherpeople”).Professional
stereotypes appear to have changed little in the nearly forty years since I designed the
descriptionofTomW.
Thetaskofrankingtheninecareersiscomplexandcertainlyrequiresthediscipline
andsequentialorganizationofwhichonlySystem2iscapable.However,thehintsplanted
inthedescription(cornypunsandothers)wereintendedtoactivateanassociationwitha
stereotype,anautomaticactivityofSystem1.
Theinstructions for thissimilarity taskrequired a comparisonof thedescription of
TomWtothestereotypesofthevariousfieldsofspecialization.Forthepurposesoftv>
IfyouexamineTomWagain,youwillseethatheisagoodfittostereotypesofsome
smallgroupsofstudents(computerscientists,librarians,engineers)andamuchpoorerfit
tothelargestgroups(humanitiesandeducation,socialscienceandsocialwork).Indeed,
the participants almost always ranked the two largest fields very low. Tom W was
intentionallydesignedasan“anti-base-rate”character,agoodfittosmallfieldsandapoor
fittothemostpopulatedspecialties.
PredictingbyRepresentativeness
Thethirdtaskinthesequencewasadministeredtograduatestudentsinpsychology,andit
isthecriticalone:rankthefieldsofspecializationinorderofthelikelihoodthatTomWis
nowagraduatestudentineachofthesefields.Themembersofthispredictiongroupknew
therelevantstatisticalfacts:theywerefamiliarwiththebaseratesofthedifferentfields,
and they knew that the source of Tom W’s description was not highly trustworthy.
However,weexpectedthemtofocusexclusivelyonthesimilarityofthedescriptiontothe
stereotypes—wecalleditrepresentativeness—ignoringboththebaseratesandthedoubts
abouttheveracityofthedescription.Theywouldthenrankthesmallspecialty—computer
science—as highly probable, because that outcome gets the highest representativeness
score.
AmosandIworkedhardduringtheyearwespentinEugene,andIsometimesstayed
in the office through the night. One of my tasks for such a night was to make up a
description that would pit representativeness and base rates against eachother. Tom W
wastheresultofmyefforts,andIcompletedthedescriptionintheearlymorninghours.
ThefirstpersonwhoshoweduptoworkthatmorningwasourcolleagueandfriendRobyn
Dawes, who was both a sophisticated statistician and a skeptic about the validity of
intuitivejudgment.Ifanyonewouldseetherelevanceofthebaserate,itwouldhavetobe
Robyn. I called Robyn over, gave him the question I had just typed, and asked him to
guessTomW’sprofession.Istillrememberhisslysmileashesaidtentatively,“computer
scientist?” That was a happy moment—even the mighty had fallen. Of course, Robyn
immediatelyrecognizedhismistake as soonasI mentioned“baserate,”but hehadnot
spontaneouslythoughtofit.Althoughheknewasmuchasanyoneabouttheroleofbase
rates in prediction, he neglected them when presented with the description of an
individual’spersonality.Asexpected,hesubstitutedajudgmentofrepresentativenessfor
theprobabilityhewasaskedtoassess.
AmosandIthencollectedanswerstothesamequestionfrom114graduatestudents
in psychology at three major universities, all of whom had taken several courses in
statistics.Theydidnotdisappointus.Theirrankingsoftheninefieldsbyprobabilitydid
notdifferfromratingsbysimilaritytothestereotype.Substitutionwasperfectinthiscase:
therewasnoindicationthattheparticipantsdidanythingelsebutjudgerepresentativeness.
Thequestionaboutprobability(likelihood)wasdifficult,butthequestionaboutsimilarity
waseasier,anditwasansweredinstead.Thisisaseriousmistake,becausejudgmentsof
similarityand probak tbilityare notconstrained by thesame logicalrules. Itis entirely
acceptable for judgments of similarity to be unaffected by base rates and also by the
possibilitythatthedescriptionwasinaccurate,butanyonewhoignoresbaseratesandthe
qualityofevidenceinprobabilityassessmentswillcertainlymakemistakes.
Theconcept“theprobabilitythatTomWstudiescomputerscience”isnotasimple
one.Logiciansandstatisticiansdisagreeaboutitsmeaning,andsomewouldsayithasno
meaningatall.Formanyexpertsitisameasureofsubjectivedegreeofbelief.Thereare
someeventsyouaresureof,forexample,thatthesunrosethismorning,andothersyou
considerimpossible,suchasthePacificOceanfreezingallatonce.Thentherearemany
events,suchasyournext-doorneighborbeingacomputerscientist,towhichyouassign
anintermediatedegreeofbelief—whichisyourprobabilityofthatevent.
Logicians and statisticians have developed competing definitions of probability, all
veryprecise. Forlaypeople, however,probability (asynonym of likelihood in everyday
language)isavaguenotion,relatedtouncertainty,propensity,plausibility,andsurprise.
Thevaguenessisnotparticulartothisconcept,norisitespeciallytroublesome.Weknow,
moreorless,whatwemeanwhenweuseawordsuchasdemocracyorbeauty andthe
peoplewearetalkingtounderstand,moreorless,whatweintendedtosay.Inalltheyears
Ispentaskingquestionsabouttheprobabilityofevents,nooneeverraisedahandtoask
me,“Sir,whatdoyoumeanbyprobability?”astheywouldhavedoneifIhadaskedthem
to assess a strange concept such as globability. Everyone acted as if they knew how to
answermyquestions,althoughweallunderstoodthatitwouldbeunfairtoaskthemforan
explanationofwhatthewordmeans.
Peoplewhoareaskedtoassessprobabilityarenotstumped,becausetheydonottryto
judge probability as statisticians and philosophers use the word. A question about
probabilityorlikelihoodactivatesamentalshotgun,evokinganswerstoeasierquestions.
One of the easy answers is an automatic assessment of representativeness—routine in
understandinglanguage.The(false)statementthat“ElvisPresley’sparentswantedhimto
beadentist”ismildlyfunnybecausethediscrepancybetweentheimagesofPresleyanda
dentistisdetectedautomatically.System1generatesanimpressionofsimilaritywithout
intendingtodoso.Therepresentativenessheuristicisinvolvedwhensomeonesays“She
willwintheelection;youcanseesheisawinner”or“Hewon’tgofarasanacademic;too
manytattoos.”Werelyonrepresentativenesswhenwejudgethepotentialleadershipofa
candidateforofficebytheshapeofhischinortheforcefulnessofhisspeeches.
Althoughitiscommon,predictionbyrepresentativenessisnotstatisticallyoptimal.
MichaelLewis’sbestsellingMoneyballisastoryabouttheinefficiencyofthismodeof
prediction. Professional baseball scouts traditionally forecast the success of possible
players in part by their build and look. The hero of Lewis’s book is Billy Beane, the
manageroftheOaklandAs,whomadetheunpopulardecisiontooverrulehisscoutsand
to select players by the statistics of past performance. The players the As picked were
inexpensive, because other teams had rejected them for not looking the part. The team
soonachievedexcellentresultsatlowcost.
TheSinsofRepresentativeness
Judging probability byals representativeness has important virtues: the intuitive
impressions that it produces are often—indeed, usually—more accurate than chance
guesseswouldbe.
Onmostoccasions,peoplewhoactfriendlyareinfactfriendly.
Aprofessionalathletewhoisverytallandthinismuchmorelikelytoplaybasketball
thanfootball.
PeoplewithaPhDaremorelikelytosubscribetoTheNewYorkTimesthanpeople
whoendedtheireducationafterhighschool.
Youngmenaremorelikelythanelderlywomentodriveaggressively.
Inallthesecasesandinmanyothers,thereissometruthtothestereotypesthatgovern
judgments of representativeness, and predictions that follow this heuristic may be
accurate.Inothersituations,thestereotypesarefalseandtherepresentativenessheuristic
willmislead,especiallyifitcausespeopletoneglectbase-rateinformationthatpointsin
anotherdirection.Evenwhentheheuristic has somevalidity,exclusive reliance on itis
associatedwithgravesinsagainststatisticallogic.
Onesinofrepresentativenessisanexcessivewillingnesstopredicttheoccurrenceof
unlikely(low base-rate) events.Hereisanexample:youseeapersonreadingTheNew
YorkTimes on the New York subway. Which of the following is a better bet about the
readingstranger?
ShehasaPhD.
Shedoesnothaveacollegedegree.
RepresentativenesswouldtellyoutobetonthePhD,butthisisnotnecessarilywise.You
shouldseriouslyconsiderthe second alternative,becausemanymorenongraduates than
PhDs ride in New York subways. And if you must guess whether a woman who is
describedas“ashypoetrylover”studiesChineseliteratureorbusinessadministration,you
shouldoptforthelatteroption.EvenifeveryfemalestudentofChineseliteratureisshy
andlovespoetry,itisalmostcertainthattherearemorebashfulpoetryloversinthemuch
largerpopulationofbusinessstudents.
Peoplewithouttraininginstatisticsarequitecapableofusingbaseratesinpredictions
under some conditions. In the first version of the Tom W problem, which provides no
detailsabout him,it is obvious to everyonethat the probability of TomW’s being in a
particular field is simply the base rate frequency of enrollment in that field. However,
concernforbaseratesevidentlydisappearsassoonasTomW’spersonalityisdescribed.
Amos and I originally believed, on the basis of our early evidence, that base-rate
information will always be neglected when information about the specific instance is
available, but that conclusion was too strong. Psychologists have conducted many
experimentsinwhichbase-rateinformationisexplicitlyprovidedaspartoftheproblem,
andmanyoftheparticipantsareinfluencedbythosebaserates,althoughtheinformation
about the individual case is almost always weighted more than mere statistics. Norbert
Schwarz and his colleagues showed that instructing people to “think like a statistician”
enhancedtheuseofbase-rateinformation,whiletheinstructionto“thinklikeaclinician”
hadtheoppositeeffect.
AnexperimentthatwasconductedafewyearsagowithHarvardundergradutoates
yieldedafindingthatsurprisedme:enhancedactivationofSystem2causedasignificant
improvementofpredictiveaccuracyintheTomWproblem.Theexperimentcombinedthe
oldproblemwithamodernvariationofcognitivefluency.Halfthestudentsweretoldto
puffouttheircheeksduringthetask,whiletheothersweretoldtofrown.Frowning,aswe
haveseen,generallyincreasesthevigilanceofSystem2andreducesbothoverconfidence
andthe reliance onintuition.The studentswhopuffedouttheircheeks (anemotionally
neutral expression) replicated the original results: they relied exclusively on
representativenessandignoredthebaserates.Astheauthorshadpredicted,however,the
frownersdidshowsomesensitivitytothebaserates.Thisisaninstructivefinding.
When an incorrect intuitive judgment is made, System 1 and System 2 should both be
indicted. System 1 suggested the incorrect intuition, and System 2 endorsed it and
expressed it in a judgment. However, there are two possible reasons for the failure of
System 2—ignorance or laziness. Some people ignore base rates because they believe
them to be irrelevant in the presence of individual information. Others make the same
mistakebecausetheyarenotfocusedonthetask.Iffrowningmakesadifference,laziness
seems to be the proper explanation of base-rate neglect, at least among Harvard
undergrads.TheirSystem2“knows”thatbaseratesarerelevantevenwhentheyarenot
explicitlymentioned,butappliesthatknowledgeonlywhenitinvestsspecialeffortinthe
task.
Thesecondsinofrepresentativenessisinsensitivitytothequalityofevidence.Recall
theruleofSystem1:WYSIATI.IntheTomWexample,whatactivatesyourassociative
machineryisadescriptionofTom,whichmayormaynotbeanaccurateportrayal.The
statementthatTomW“haslittlefeelandlittlesympathyforpeople”wasprobablyenough
toconvinceyou(andmostotherreaders)thatheisveryunlikelytobeastudentofsocial
science or social work. But you were explicitly told that the description should not be
trusted!
Yousurelyunderstand in principlethatworthless informationshouldnot be treated
differentlyfromacompletelackofinformation,butWYSIATImakesitverydifficultto
applythatprinciple.Unlessyoudecideimmediatelytorejectevidence(forexample,by
determiningthatyoureceiveditfromaliar),yourSystem1willautomaticallyprocessthe
information available as if it were true. There is one thing you can do when you have
doubtsaboutthequalityoftheevidence:letyourjudgmentsofprobabilitystaycloseto
thebaserate.Don’texpectthisexerciseofdisciplinetobeeasy—itrequiresasignificant
effortofself-monitoringandself-control.
ThecorrectanswertotheTomWpuzzleisthatyoushouldstayveryclosetoyour
prior beliefs, slightly reducing the initially high probabilities of well-populated fields
(humanities and education; social science and social work) and slightly raising the low
probabilities of rare specialties (library science, computer science). You are not exactly
whereyouwouldbeifyouhadknownnothingatallaboutTomW,butthelittleevidence
youhaveisnottrustworthy,sothebaseratesshoulddominateyourestimates.
HowtoDisciplineIntuition
Your probability that it will rain tomorrow is your subjective degree of belief, but you
shouldnotletyourselfbelievewhatevercomestoyourmind.Tobeuseful,yourbeliefs
shouldbe constrainedby the logicof probability. Soif you believethat thereis a40%
chanceplethatitwillrainsometimetomorrow,youmustalsobelievethatthereisa60%
chanceitwillnotraintomorrow,andyoumustnotbelievethatthereisa50%chancethat
it will rain tomorrow morning. And if you believe that there is a 30% chance that
candidateXwillbeelectedpresident,andan80%chancethathewillbereelectedifhe
winsthefirsttime,thenyoumustbelievethatthechancesthathewillbeelectedtwiceina
roware24%.
Therelevant“rules”forcasessuchastheTomWproblemareprovidedbyBayesian
statistics.ThisinfluentialmodernapproachtostatisticsisnamedafteranEnglishminister
of the eighteenth century, the Reverend Thomas Bayes, who is credited with the first
majorcontributiontoalargeproblem:thelogicofhowpeopleshouldchangetheirmind
inthelightofevidence.Bayes’srulespecifieshowpriorbeliefs(intheexamplesofthis
chapter,baserates)shouldbecombinedwiththediagnosticityoftheevidence,thedegree
towhichitfavorsthehypothesisoverthealternative.Forexample,ifyoubelievethat3%
ofgraduatestudentsareenrolledincomputerscience(thebaserate),andyoualsobelieve
thatthedescriptionofTomWis4timesmorelikelyforagraduatestudentinthatfield
thaninotherfields,thenBayes’srulesaysyoumustbelievethattheprobabilitythatTom
Wisacomputerscientistisnow11%.Ifthebaseratehadbeen80%,thenewdegreeof
beliefwouldbe94.1%.Andsoon.
Themathematicaldetailsarenotrelevantinthisbook.Therearetwoideastokeepin
mindaboutBayesianreasoningandhowwetendtomessitup.Thefirstisthatbaserates
matter, even in the presence of evidence about the case at hand. This is often not
intuitively obvious. The second is that intuitive impressions of the diagnosticity of
evidenceareoftenexaggerated.ThecombinationofWYSIATIandassociativecoherence
tends to make us believe in the stories we spin for ourselves. The essential keys to
disciplinedBayesianreasoningcanbesimplysummarized:
Anchoryourjudgmentoftheprobabilityofanoutcomeonaplausiblebaserate.
Questionthediagnosticityofyourevidence.
Bothideasarestraightforward.ItcameasashocktomewhenIrealizedthatIwasnever
taughthowtoimplementthem,andthatevennowIfinditunnaturaltodoso.
SpeakingofRepresentativeness
“The lawn is well trimmed, the receptionist looks competent, and the furniture is
attractive,butthisdoesn’tmeanitisawell-managedcompany.Ihopetheboarddoes
notgobyrepresentativeness.”
“Thisstart-uplooksasifitcouldnotfail,butthebaserateofsuccessintheindustry
isextremelylow.Howdoweknowthiscaseisdifferent?”
“They keep making the same mistake: predicting rare events from weak evidence.
Whentheevidenceisweak,oneshouldstickwiththebaserates.”
“Iknowthisreportisabsolutelydamning,anditmaybebasedonsolidevidence,but
howsurearewe?Wemustallowforthatuncertaintyinourthinking.”
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Linda:LessIsMore
The best-known and most controversial of our experiments involved a fictitious lady
calledLinda.AmosandImadeuptheLindaproblemtoprovideconclusiveevidenceof
theroleofheuristicsinjudgmentandoftheirincompatibilitywithlogic.Thisishowwe
describedLinda:
Linda is thirty-one years old, single, outspoken, and very bright. She majored in
philosophy.Asastudent,shewasdeeplyconcernedwithissuesofdiscriminationand
socialjustice,andalsoparticipatedinantinucleardemonstrations.
The audiences who heard this description in the 1980s always laughed because they
immediatelyknewthatLindahadattendedtheUniversityofCaliforniaatBerkeley,which
was famous at the time for its radical, politically engaged students. In one of our
experimentswepresentedparticipantswithalistofeightpossiblescenariosforLinda.As
in the Tom W problem, some ranked the scenarios by representativeness, others by
probability.TheLindaproblemissimilar,butwithatwist.
Lindaisateacherinelementaryschool.
Lindaworksinabookstoreandtakesyogaclasses.
Lindaisactiveinthefeministmovement.
Lindaisapsychiatricsocialworker.
LindaisamemberoftheLeagueofWomenVoters.
Lindaisabankteller.
Lindaisaninsurancesalesperson.
Lindaisabanktellerandisactiveinthefeministmovement.
Theproblemshowsitsageinseveralways.TheLeagueofWomenVotersisnolongeras
prominentasitwas,andtheideaofafeminist“movement”soundsquaint,atestimonialto
thechangeinthestatusof women overthelastthirtyyears.Evenin the Facebookera,
however, it is still easy to guess the almost perfect consensus of judgments: Linda is a
very good fit for an active feminist, a fairly good fit for someone who works in a
bookstoreandtakesyoga classes—and averypoorfit for abanktelleror an insurance
salesperson.
Nowfocusonthecriticalitemsinthelist:DoesLindalookmorelikeabankteller,or
more like a bank teller who is active in the feminist movement? Everyone agrees that
Lindafitstheideaofa“feministbankteller”betterthanshefitsthestereotypeofbank
tellers.Thestereotypicalbanktellerisnotafeministactivist,andaddingthatdetailtothe
descriptionmakesforamorecoherentstory.
The twist comes in the judgments of likelihood, because there is a logical relation
between the two scenarios. Think in terms of Venn diagrams. The set of feminist bank
tellers is wholly included in the set of bank tellers, as every feminist bank teller
is0%“ustworaban0%”wabankteller.ThereforetheprobabilitythatLindaisafeminist
banktellermustbelowerthantheprobabilityofherbeingabankteller.Whenyouspecify
apossibleeventingreaterdetailyoucanonlyloweritsprobability.Theproblemtherefore
setsupaconflictbetweentheintuitionofrepresentativenessandthelogicofprobability.
Our initial experiment was between-subjects. Each participant saw a set of seven
outcomes that included only one of the critical items (“bank teller” or “feminist bank
teller”).Somerankedtheoutcomesbyresemblance,othersbylikelihood.Asinthecaseof
TomW,theaveragerankingsbyresemblanceandbylikelihoodwereidentical;“feminist
bankteller”rankedhigherthan“bankteller”inboth.
Thenwetooktheexperimentfurther,usingawithin-subjectdesign.Wemadeupthe
questionnaireasyousawit,with“bankteller”inthesixthpositioninthelistand“feminist
bankteller”asthelastitem.Wewereconvincedthatsubjectswouldnoticethe relation
betweenthetwooutcomes,andthattheirrankingswouldbeconsistentwithlogic.Indeed,
we were so certain of this that we did not think it worthwhile to conduct a special
experiment.My assistantwas runninganother experimentin thelab, andshe askedthe
subjectstocompletethenewLindaquestionnairewhilesigningout,justbeforetheygot
paid.
Abouttenquestionnaireshadaccumulatedinatrayonmyassistant’sdeskbeforeI
casuallyglancedatthemandfoundthatallthesubjectshadranked“feministbankteller”
as more probable than “bank teller.” I was so surprised that I still retain a “flashbulb
memory”ofthegraycolorofthemetaldeskandofwhereeveryonewaswhenImadethat
discovery.IquicklycalledAmosingreatexcitementtotellhimwhatwehadfound:we
hadpittedlogicagainstrepresentativeness,andrepresentativenesshadwon!
Inthelanguageofthisbook,wehadobservedafailureofSystem2:ourparticipants
hadafairopportunitytodetecttherelevanceofthelogicalrule,sincebothoutcomeswere
includedinthesameranking.Theydidnottakeadvantageofthatopportunity.Whenwe
extendedtheexperiment,wefoundthat89%oftheundergraduatesinoursampleviolated
the logic of probability. We were convinced that statistically sophisticated respondents
would do better, so we administered the same questionnaire to doctoral students in the
decision-scienceprogramoftheStanfordGraduateSchoolofBusiness,allofwhomhad
taken several advanced courses in probability, statistics, and decision theory. We were
surprised again: 85% of these respondents also ranked “feminist bank teller” as more
likelythan“bankteller.”
Inwhatwelaterdescribedas“increasinglydesperate”attemptstoeliminatetheerror,
weintroducedlargegroupsofpeopletoLindaandaskedthemthissimplequestion:
Whichalternativeismoreprobable?
Lindaisabankteller.
Lindaisabanktellerandisactiveinthefeministmovement.
Thisstarkversionof the problemmadeLindafamousin some circles,anditearned us
yearsofcontroversy.About85%to90%ofundergraduatesatseveralmajoruniversities
chose the second option, contrary to logic. Remarkably, the sinners seemed to have no
shame. When I asked my large undergraduatnite class in some indignation, “Do you
realize that you have violated an elementary logical rule?” someone in the back row
shouted,“Sowhat?”andagraduatestudentwhomadethesameerrorexplainedherselfby
saying,“Ithoughtyoujustaskedformyopinion.”
Thewordfallacyisused,ingeneral,whenpeoplefailtoapplyalogicalrulethatis
obviouslyrelevant.AmosandIintroducedtheideaofaconjunctionfallacy,whichpeople
commitwhentheyjudgeaconjunctionoftwoevents(here,banktellerandfeminist)tobe
moreprobablethanoneoftheevents(bankteller)inadirectcomparison.
AsintheMüller-Lyerillusion,thefallacyremainsattractiveevenwhenyourecognize
it for what it is. The naturalist Stephen Jay Gould described his own struggle with the
Linda problem. He knew the correct answer, of course, and yet, he wrote, “a little
homunculusinmyheadcontinuestojumpupanddown,shoutingatme—‘butshecan’t
justbe abank teller; readthe description.’”The little homunculusis ofcourse Gould’s
System 1 speaking to him in insistent tones. (The two-system terminology had not yet
beenintroducedwhenhewrote.)
The correct answer to the short version of the Linda problem was the majority
response in only one of our studies: 64% of a group of graduate students in the social
sciences at Stanford and at Berkeley correctly judged “feminist bank teller” to be less
probablethan“bankteller.”Intheoriginalversionwitheightoutcomes(shownabove),
only15%ofasimilargroupofgraduatestudentshadmadethatchoice.Thedifferenceis
instructive.Thelongerversionseparatedthetwocriticaloutcomesbyaninterveningitem
(insurance salesperson), and the readers judged each outcome independently, without
comparing them. The shorter version, in contrast, required an explicit comparison that
mobilizedSystem2andallowedmostofthestatisticallysophisticatedstudentstoavoid
the fallacy. Unfortunately, we did not explore the reasoning of the substantial minority
(36%)ofthisknowledgeablegroupwhochoseincorrectly.
Thejudgments ofprobability thatour respondentsoffered,inboth the TomWand
Lindaproblems,correspondedpreciselytojudgmentsofrepresentativeness(similarityto
stereotypes).Representativenessbelongstoaclusterofcloselyrelatedbasicassessments
thatarelikelytobegeneratedtogether.Themostrepresentativeoutcomescombinewith
thepersonalitydescriptiontoproducethemostcoherentstories.Themostcoherentstories
arenotnecessarilythemostprobable,buttheyareplausible,andthenotionsofcoherence,
plausibility,andprobabilityareeasilyconfusedbytheunwary.
The uncritical substitution of plausibility for probability has pernicious effects on
judgmentswhenscenariosareusedastoolsofforecasting.Considerthesetwoscenarios,
whichwerepresentedtodifferentgroups,witharequesttoevaluatetheirprobability:
AmassivefloodsomewhereinNorthAmericanextyear,inwhichmorethan1,000
peopledrown
AnearthquakeinCaliforniasometimenextyear,causingafloodinwhichmorethan
1,000peopledrown
The California earthquake scenario is more plausible than the North America scenario,
although its probability is certainly smaller. As expected, probability judgments were
higherfor thericher andmore entdetailedscenario, contraryto logic.This isa trapfor
forecastersandtheirclients:addingdetailtoscenariosmakesthemmorepersuasive,but
lesslikelytocometrue.
Toappreciatetheroleofplausibility,considerthefollowingquestions:
Whichalternativeismoreprobable?
Markhashair.
Markhasblondhair.
and
Whichalternativeismoreprobable?
Janeisateacher.
Janeisateacherandwalkstowork.
ThetwoquestionshavethesamelogicalstructureastheLindaproblem,buttheycauseno
fallacy,becausethemoredetailedoutcomeisonlymoredetailed—itisnotmoreplausible,
ormorecoherent,orabetterstory.Theevaluationofplausibilityandcoherencedoesnot
suggestandanswertotheprobabilityquestion.Intheabsenceofacompetingintuition,
logicprevails.
LessIsMore,SometimesEvenInJointEvaluation
ChristopherHsee,oftheUniversityofChicago,askedpeopletopricesetsofdinnerware
offeredinaclearancesaleinalocalstore,wheredinnerwareregularlyrunsbetween$30
and$60.Therewerethreegroupsinhisexperiment.Thedisplaybelowwasshowntoone
group;Hseelabelsthatjointevaluation,becauseitallowsacomparisonofthetwosets.
Theothertwogroupswereshownonlyoneofthetwosets;thisissingleevaluation.Joint
evaluationisawithin-subjectexperiment,andsingleevaluationisbetween-subjects.
SetA:40pieces SetB:24pieces
Dinnerplates 8,allingoodcondition 8,allingoodcondition
Soup/saladbowls 8,allingoodcondition 8,allingoodcondition
Dessertplates 8,allingoodcondition 8,allingoodcondition
Cups 8,2ofthembroken
Saucers 8,7ofthembroken
Assumingthatthedishesinthetwosetsareofequalquality,whichisworthmore?
Thisquestioniseasy.YoucanseethatSetAcontainsallthedishesofSetB,andseven
additional intact dishes, and it must be valued more. Indeed, the participants in Hsees
jointevaluationexperimentwerewillingtopayalittlemoreforSetAthanforSetB:$32
versus$30.
Theresultsreversedinsingleevaluation,whereSetBwaspricedmuchhigherthan
SetA:$33versus$23.Weknowwhythishappened.Sets(includingdinnerwaresets!)are
representedbynormsandprototypes.Youcansenseimmediatelythattheaveragevalueof
thedishesismuchlowerforSetAthanforSetB,becausenoonewantstopayforbroken
dishes.Iftheaverage dominates theevaluation,itisnot surprising thatSetBisvalued
more.Hseecalledtheresultingpatternlessismore.Byremoving16itemsfromSetA(7
ofthemintact),itsvalueisimproved.
Hsee’s finding was replicated by the experimental economist John List in a real
marketforbaseballcards.Heauctionedsetsoftenhigh-valuecards,andidenticalsetsto
which three cards of modest value were added. As in the dinnerware experiment, the
largersetswerevaluedmorethanthesmalleronesinjointevaluation,butlessinsingle
evaluation.Fromtheperspectiveofeconomictheory,thisresultistroubling:theeconomic
value of a dinnerware set or of a collection of baseball cards is a sum-like variable.
Addingapositivelyvalueditemtothesetcanonlyincreaseitsvalue.
The Linda problem and the dinnerware problem have exactly the same structure.
Probability,likeeconomicvalue,isasum-likevariable,asillustratedbythisexample:
probability(Lindaisateller)=probability(Lindaisfeministteller)+probability(Linda
isnon-feministteller)
Thisisalsowhy,asinHsee’sdinnerwarestudy,singleevaluationsoftheLindaproblem
produce a less-is-more pattern. System 1 averages instead of adding, so when the non-
feministbanktellersareremovedfromtheset,subjectiveprobabilityincreases.However,
thesum-likenature ofthevariable islessobvious forprobabilitythan formoney.As a
result, joint evaluation eliminates the error only in Hsee’s experiment, not in the Linda
experiment.
Linda was not the only conjunction error that survived joint evaluation. We found
similarviolationsoflogicinmanyotherjudgments.Participantsinoneofthesestudies
wereaskedtorankfourpossibleoutcomesofthenextWimbledontournamentfrommost
toleastprobable.BjörnBorgwasthedominanttennisplayerofthedaywhenthestudy
wasconducted.Theseweretheoutcomes:
A.Borgwillwinthematch.
B.Borgwilllosethefirstset.
C.Borgwilllosethefirstsetbutwinthematch.
D.Borgwillwinthefirstsetbutlosethematch.
ThecriticalitemsareBandC.Bisthemoreinclusiveeventanditsprobabilitymustbe
higherthanthatofaneventitincludes.Contrarytologic,butnottorepresentativenessor
plausibility,72%assignedBalowerprobabilitythanC—anotherinstanceoflessismore
in a direct comparison. Here si again, the scenario that was judged more probable was
unquestionablymoreplausible,amorecoherentfitwithallthatwasknownaboutthebest
tennisplayerintheworld.
To head off the possible objection that the conjunction fallacy is due to a
misinterpretation of probability, we constructed a problem that required probability
judgments,butinwhichtheeventswerenotdescribedinwords,andthetermprobability
didnot appear atall. We toldparticipantsabout a regularsix-sided die withfour green
faces and two red faces, which would be rolled 20 times. They were shown three
sequences of greens (G) and reds (R), and were asked to choose one. They would
(hypothetically)win$25iftheirchosensequenceshowedup.Thesequenceswere:
1. RGRRR
2. GRGRRR
3. GRRRRR
Because the die has twice as many green as red faces, the first sequence is quite
unrepresentative—likeLindabeingabankteller.Thesecondsequence,whichcontainssix
tosses,isabetterfittowhatwewouldexpectfromthisdie,becauseitincludestwoG’s.
However, this sequence was constructed by adding a G to the beginning of the first
sequence,soitcanonlybelesslikelythanthefirst.Thisisthenonverbalequivalentto
Lindabeingafeministbankteller.AsintheLindastudy,representativenessdominated.
Almosttwo-thirdsofrespondentspreferredtobetonsequence2ratherthanonsequence
1.Whenpresentedwithargumentsforthetwochoices,however,alargemajorityfound
thecorrectargument(favoringsequence1)moreconvincing.
Thenextproblemwasabreakthrough,becausewefinallyfoundaconditioninwhich
theincidenceoftheconjunctionfallacywasmuchreduced.Twogroupsofsubjectssaw
slightlydifferentvariantsofthesameproblem:
Theincidenceoferrorswas65%inthegroupthatsawtheproblemontheleft,andonly
25%inthegroupthatsawtheproblemontheright.
Why is the question “How many of the 100 participants…” so much easier than
“Whatpercentage…”?Alikelyexplanationisthatthereferenceto100individualsbrings
aspatialrepresentationtomind.Imaginethatalargenumberofpeopleareinstructedto
sortthemselvesintogroupsinaroom:“ThosewhosenamesbeginwiththelettersAtoL
are told to gather in the front left corner.” They are then instructed to sort themselves
further.Therelationofinclusionisnowobvious,andyoucanseethatindividualswhose
namebeginswithCwillbeasubsetofthecrowdinthefrontleftcorner.Inthemedical
surveyquestion,heartattackvictimsendupinacorneroftheroom,andsomeofthemare
less than 55 years old. Not everyone will share this particular vivid imagery, but many
subsequent experiments have shown that the frequency representation, as it is known,
makesiteasytoappreciatethatonegroupiswhollyincludedintheother.Thesolutionto
the puzzle appears to be that a question phrased as “how many?” makes you think of
individuals,butthesamequestionphrasedas“whatpercentage?”doesnot.
What have we learned from these studies about the workings of System 2? One
conclusion, which is not new, is that System 2 is not impressively alert. The
undergraduatesandgraduatestudentswhoparticipatedinourthastudiesoftheconjunction
fallacycertainly“knew”thelogicofVenndiagrams,buttheydidnotapplyitreliablyeven
whenalltherelevantinformationwaslaidoutinfrontofthem.Theabsurdityoftheless-
is-morepatternwasobviousinHsee’sdinnerwarestudyandwaseasilyrecognizedinthe
“howmany?”representation,butitwasnotapparenttothethousandsofpeoplewhohave
committedtheconjunctionfallacyintheoriginalLindaproblemandinotherslikeit.Inall
thesecases,theconjunctionappearedplausible,andthatsufficedforanendorsementof
System2.
ThelazinessofSystem2ispartofthestory.Iftheirnextvacationhaddependedonit,
andiftheyhadbeengivenindefinitetimeandtoldtofollowlogicandnottoansweruntil
theyweresureoftheiranswer,Ibelievethatmostofoursubjectswouldhaveavoidedthe
conjunction fallacy. However, their vacation did not depend on a correct answer; they
spentverylittletimeonit,andwerecontenttoanswerasiftheyhadonlybeen“askedfor
theiropinion.”ThelazinessofSystem2isanimportantfactoflife,andtheobservation
thatrepresentativenesscanblocktheapplicationofanobviouslogicalruleisalsoofsome
interest.
TheremarkableaspectoftheLindastoryisthecontrasttothebroken-dishesstudy.
Thetwoproblemshavethesamestructure,butyielddifferentresults.Peoplewhoseethe
dinnerware set that includes broken dishes put a very low price on it; their behavior
reflects a rule of intuition. Others who see both sets at once apply the logical rule that
more dishes can only add value. Intuition governs judgments in the between-subjects
condition;logicrulesinjointevaluation.IntheLindaproblem,incontrast,intuitionoften
overcamelogiceveninjointevaluation,althoughweidentifiedsomeconditionsinwhich
logicprevails.
AmosandIbelievedthattheblatantviolationsofthelogicofprobabilitythatwehad
observedintransparentproblemswereinterestingandworthreportingtoourcolleagues.
Wealsobelievedthattheresultsstrengthenedourargumentaboutthepowerofjudgment
heuristics, and that they would persuade doubters. And in this we were quite wrong.
Instead,theLindaproblembecameacasestudyinthenormsofcontroversy.
TheLindaproblemattractedagreatdealofattention,butitalsobecameamagnetfor
critics of our approach to judgment. As we had already done, researchers found
combinations of instructions and hints that reduced the incidence of the fallacy; some
arguedthat,inthecontextoftheLindaproblem,itisreasonableforsubjectstounderstand
the word “probability” as if it means “plausibility.” These arguments were sometimes
extended to suggest that our entire enterprise was misguided: if one salient cognitive
illusion could be weakened or explained away, others could be as well. This reasoning
neglects the unique feature of the conjunction fallacy as a case of conflict between
intuitionandlogic.Theevidencethatwehadbuiltupforheuristicsfrombetween-subjects
experiment(includingstudiesofLinda)wasnotchallenged—itwassimplynotaddressed,
anditssaliencewasdiminishedbytheexclusivefocusontheconjunctionfallacy.Thenet
effectoftheLindaproblemwas an increase in the visibilityofourworktothegeneral
public,andasmalldentinthecredibilityofourapproachamongscholarsinthefield.This
wasnotatallwhatwehadexpected.
Ifyouvisitacourtroomyouwillobservethatlawyersapplytwostylesofcriticism:to
demolishacasetheyraisedoubtsaboutthestrongestargumentsthatfavorit;todiscredita
witness,theyfocusontheweakestpartofthetestimony.Thefocusonweaknessesisalso
normalinpoliticaverldebates.Idonotbelieveitisappropriateinscientificcontroversies,
butIhavecometoacceptasafactoflifethatthenormsofdebateinthesocialsciencesdo
notprohibitthepoliticalstyleofargument,especiallywhenlargeissuesareatstake—and
theprevalenceofbiasinhumanjudgmentisalargeissue.
SomeyearsagoIhadafriendlyconversationwithRalphHertwig,apersistentcritic
of the Linda problem, with whom I had collaborated in a vain attempt to settle our
differences. I asked him why he and others had chosen to focus exclusively on the
conjunctionfallacy, ratherthan onother findingsthat provided strongersupport forour
position. He smiled as he answered, “It was more interesting,” adding that the Linda
problemhadattractedsomuchattentionthatwehadnoreasontocomplain.
SpeakingofLessisMore
“They constructed a very complicated scenario and insisted on calling it highly
probable.Itisnot—itisonlyaplausiblestory.”
“They added a cheap gift to the expensive product, and made the whole deal less
attractive.Lessismoreinthiscase.”
“Inmostsituations,adirectcomparisonmakespeoplemorecarefulandmorelogical.
Butnotalways.Sometimesintuitionbeatslogicevenwhenthecorrectanswerstares
youintheface.”
P
CausesTrumpStatistics
Considerthefollowingscenarioandnoteyourintuitiveanswertothequestion.
Acabwasinvolvedinahit-and-runaccidentatnight.
Twocabcompanies,theGreenandtheBlue,operateinthecity.
Youaregiventhefollowingdata:
85%ofthecabsinthecityareGreenand15%areBlue.
AwitnessidentifiedthecabasBlue.Thecourttested the reliability of thewitness
underthecircumstancesthatexistedonthenightoftheaccidentandconcludedthat
thewitnesscorrectlyidentifiedeachoneofthetwocolors80%ofthetimeandfailed
20%ofthetime.
What is the probability that the cab involved in the accident was Blue rather than
Green?
ThisisastandardproblemofBayesianinference.Therearetwoitemsofinformation:a
baserateandtheimperfectlyreliabletestimonyofawitness.Intheabsenceofawitness,
theprobabilityoftheguiltycabbeingBlueis15%,whichisthebaserateofthatoutcome.
Ifthetwocabcompanieshadbeenequallylarge,thebaseratewouldbeuninformativeand
youwouldconsideronlythereliabilityofthewitness,%”>ourw
CausalStereotypes
Nowconsideravariationofthesamestory,inwhichonlythepresentationofthebaserate
hasbeenaltered.
Youaregiventhefollowingdata:
Thetwocompaniesoperatethesamenumberofcabs,butGreencabsareinvolvedin
85%ofaccidents.
Theinformationaboutthewitnessisasinthepreviousversion.
The two versions of the problem are mathematically indistinguishable, but they are
psychologicallyquitedifferent.Peoplewhoreadthefirstversiondonotknowhowtouse
the base rate and often ignore it. In contrast, people who see the second version give
considerableweighttothebaserate,andtheiraveragejudgmentisnottoofarfromthe
Bayesiansolution.Why?
Inthefirstversion,thebaserateofBluecabsisastatisticalfactaboutthecabsinthe
city. A mind that is hungry for causal stories finds nothing to chew on: How does the
numberofGreenandBluecabsinthecitycausethiscabdrivertohitandrun?
Inthesecondversion,incontrast,thedriversofGreencabscausemorethan5times
asmanyaccidentsastheBluecabsdo.Theconclusionisimmediate:theGreendrivers
mustbe a collection of recklessmadmen! Youhave now formed a stereotypeof Green
recklessness, which you apply to unknown individual drivers in the company. The
stereotypeiseasilyfittedintoacausalstory,becauserecklessnessisacausallyrelevant
factaboutindividualcabdrivers.Inthisversion,therearetwocausalstoriesthatneedtobe
combinedorreconciled.Thefirstisthehitandrun,whichnaturallyevokestheideathata
reckless Green driver was responsible. The second is the witness’s testimony, which
stronglysuggeststhecabwasBlue.Theinferencesfromthetwostoriesaboutthecolorof
thecar arecontradictory andapproximately canceleach other.The chancesfor thetwo
colorsareaboutequal(theBayesianestimateis41%,reflectingthefactthatthebaserate
ofGreencabsisalittlemoreextremethanthereliabilityofthewitnesswhoreporteda
Bluecab).
The cab example illustrates two types of base rates. Statistical base rates are facts
about a population to which a case belongs, but they are not relevant to the individual
case.Causalbaserateschangeyourviewofhowtheindividualcasecametobe.Thetwo
typesofbase-rateinformationaretreateddifferently:
Statistical base rates are generally underweighted, and sometimes neglected
altogether,whenspecificinformationaboutthecaseathandisavailable.
Causalbaseratesaretreatedasinformationabouttheindividualcaseandareeasily
combinedwithothercase-specificinformation.
The causal version of the cab problem had the form of a stereotype: Green drivers are
dangerous. Stereotypes are statements about the group that are (at least tentatively)
acceptedasfactsabouteverymember.Helyrearetwoexamples:
Mostofthegraduatesofthisinner-cityschoolgotocollege.
InterestincyclingiswidespreadinFrance.
Thesestatementsarereadilyinterpretedassettingupapropensityinindividualmembers
ofthe group, andthey fitina causalstory. Manygraduates of thisparticular inner-city
schoolareeagerandabletogotocollege,presumablybecauseofsomebeneficialfeatures
oflifeinthatschool.ThereareforcesinFrenchcultureandsociallifethatcausemany
Frenchmentotakeaninterestincycling.Youwillberemindedofthesefactswhenyou
thinkaboutthelikelihoodthataparticulargraduateoftheschoolwillattendcollege,or
when you wonder whether to bring up the Tour de France in a conversation with a
Frenchmanyoujustmet.
Stereotypingisabadwordinourculture,butinmyusageitisneutral.Oneofthebasic
characteristics of System 1 is that it represents categories as norms and prototypical
exemplars.Thisishowwethinkofhorses,refrigerators,andNewYorkpoliceofficers;we
hold in memory a representation of one or more “normal” members of each of these
categories. When the categories are social, these representations are called stereotypes.
Some stereotypes are perniciously wrong, and hostile stereotyping can have dreadful
consequences,butthepsychologicalfactscannotbeavoided:stereotypes,bothcorrectand
false,arehowwethinkofcategories.
Youmaynotetheirony.Inthecontextofthecabproblem,theneglectofbase-rate
informationisacognitiveflaw,afailureofBayesianreasoning,andtherelianceoncausal
baseratesisdesirable.StereotypingtheGreendriversimprovestheaccuracyofjudgment.
In other contexts, however, such as hiring or profiling, there is a strong social norm
against stereotyping, which is also embedded in the law. This is as it should be. In
sensitivesocialcontexts,wedonotwanttodrawpossiblyerroneousconclusionsaboutthe
individualfromthestatisticsofthegroup.Weconsideritmorallydesirableforbaserates
to be treated as statistical facts about the group rather than as presumptive facts about
individuals.Inotherwords,werejectcausalbaserates.
Thesocialnormagainststereotyping,includingtheoppositiontoprofiling,hasbeen
highly beneficial in creating a more civilized and more equal society. It is useful to
remember, however, that neglecting valid stereotypes inevitably results in suboptimal
judgments.Resistancetostereotypingisalaudablemoralposition,butthesimplisticidea
that the resistance is costless is wrong. The costs are worth paying to achieve a better
society,butdenyingthatthecostsexist,whilesatisfyingtothesoulandpoliticallycorrect,
isnotscientificallydefensible.Reliance on theaffectheuristic is commoninpolitically
charged arguments. The positions we favor have no cost and those we oppose have no
benefits.Weshouldbeabletodobetter.
CausalSituations
Amos and I constructed the variants of the cab problem, but we did not invent the
powerfulnotionofcausalbaserates;weborroweditfromthepsychologistIcekAjzen.In
his experiment, Ajzen showed his participants brief vignettes describing some students
whohad takenan examat Yaleand askedthe participantsto judgethe probabilitythat
each student had passed the test. The manipulation of causal bs oase rates was
straightforward:Ajzentoldonegroupthatthestudentstheysawhadbeendrawnfroma
classinwhich75%passedtheexam,andtoldanothergroupthatthesamestudentshad
beeninaclassinwhichonly25%passed.Thisisapowerfulmanipulation,becausethe
baserateofpassingsuggeststheimmediateinferencethatthetestthatonly25%passed
musthavebeenbrutallydifficult.Thedifficultyofatestis,ofcourse,oneofthecausal
factorsthatdetermineeverystudent’soutcome.Asexpected,Ajzen’ssubjectswerehighly
sensitivetothecausalbaserates,andeverystudentwasjudgedmorelikelytopassinthe
high-successconditionthaninthehigh-failurerate.
Ajzenusedaningeniousmethodtosuggestanoncausalbaserate.Hetoldhissubjects
thatthestudentstheysawhadbeendrawnfromasample,whichitselfwasconstructedby
selectingstudentswhohadpassedorfailedtheexam.Forexample,theinformationforthe
high-failuregroupreadasfollows:
The investigator was mainly interested in the causes of failure and constructed a
sampleinwhich75%hadfailedtheexamination.
Note the difference. This base rate is a purely statistical fact about the ensemble from
whichcaseshavebeendrawn.Ithasnobearingonthequestionasked,whichiswhether
theindividualstudentpassedorfailedthetest.Asexpected,theexplicitlystatedbaserates
had some effects on judgment, but they had much less impact than the statistically
equivalent causal base rates. System 1 can deal with stories in which the elements are
causallylinked,butitisweakinstatisticalreasoning.ForaBayesianthinker,ofcourse,
theversionsareequivalent.Itistemptingtoconcludethatwehavereachedasatisfactory
conclusion:causalbaseratesareused;merelystatisticalfactsare(moreorless)neglected.
The next study, one of my all-time favorites, shows that the situation is rather more
complex.
CanPsychologybeTaught?
The reckless cabdrivers and the impossibly difficult exam illustrate two inferences that
people can draw from causal base rates: a stereotypical trait that is attributed to an
individual,andasignificantfeatureofthesituationthataffectsanindividual’soutcome.
The participants in the experiments made the correct inferences and their judgments
improved.Unfortunately,thingsdonotalwaysworkoutsowell.TheclassicexperimentI
describenextshowsthatpeoplewillnotdrawfrombase-rateinformationaninferencethat
conflicts with other beliefs. It also supports the uncomfortableconclusion that teaching
psychologyismostlyawasteoftime.
The experiment was conducted a long time ago by the social psychologistRichard
NisbettandhisstudentEugeneBorgida,attheUniversityofMichigan.Theytoldstudents
abouttherenowned“helpingexperiment”thathadbeenconductedafewyearsearlierat
NewYork University.Participants inthat experiment wereled toindividual booths and
invitedtospeakovertheintercomabouttheirpersonallivesandproblems.Theywereto
talkinturnforabouttwominutes.Onlyonemicrophonewasactiveatanyonetime.There
weresixparticipantsineachgroup,oneofwhomwasastooge.Thestoogespokefirst,
followingascriptpreparedbytheexperimenters.Hedescribedhisproblemsadjustingto
New York and admitted with obvious embarrassment that he was prone to seizures,
especiallywhenstressed.Alltheparticipantsthenhadaturn.Whenthemicrophonewas
againturnedovertothestooge,hebecameagitatedandincoherent,saidhefeltaseizure
comingon,andpeoaskedforsomeonetohelphim.Thelastwordsheardfromhimwere,
“C-could somebody-er-er-help-er-uh-uh-uh [choking sounds]. I…I’m gonna die-er-er-er
I’m…gonnadie-er-er-IseizureI-er[chokes,thenquiet].”Atthispointthemicrophoneof
thenext participantautomaticallybecame active, andnothing morewas heardfrom the
possiblydyingindividual.
Whatdoyouthinktheparticipantsintheexperimentdid?Sofarastheparticipants
knew, one of them was having a seizure and had asked for help. However, there were
severalotherpeoplewhocouldpossiblyrespond,soperhapsonecouldstaysafelyinone’s
booth.Theseweretheresults:onlyfourofthefifteenparticipantsrespondedimmediately
totheappealforhelp.Sixnevergotoutoftheirbooth,andfiveotherscameoutonlywell
afterthe“seizurevictim”apparentlychoked.Theexperimentshowsthatindividualsfeel
relieved of responsibility when they know that others have heard the same request for
help.
Didtheresultssurpriseyou?Veryprobably.Mostofusthinkofourselvesasdecent
peoplewhowouldrushtohelpinsuchasituation,andweexpectotherdecentpeopleto
dothesame.Thepointoftheexperiment,ofcourse,wastoshowthatthisexpectationis
wrong.Evennormal,decentpeopledonotrushtohelpwhentheyexpectotherstotakeon
theunpleasantnessofdealingwithaseizure.Andthatmeansyou,too.
Areyouwillingtoendorsethefollowingstatement?“WhenIreadtheprocedureof
thehelping experiment Ithought Iwould cometo the strangers helpimmediately,as I
probablywouldifIfoundmyselfalonewithaseizurevictim.Iwasprobablywrong.IfI
findmyselfinasituationinwhichotherpeoplehaveanopportunitytohelp,Imightnot
step forward. The presence of others would reduce my sense of personal responsibility
morethanIinitiallythought.”Thisiswhatateacherofpsychologywouldhopeyouwould
learn.Wouldyouhavemadethesameinferencesbyyourself?
Thepsychologyprofessorwhodescribesthehelpingexperimentwantsthestudentsto
viewthelowbaserateascausal,justasinthecaseofthefictitiousYaleexam.Hewants
themtoinfer,inbothcases,thatasurprisinglyhighrateoffailureimpliesaverydifficult
test. The lesson students are meant to take away is that some potent feature of the
situation,suchasthediffusionofresponsibility,inducesnormalanddecentpeoplesuchas
themtobehaveinasurprisinglyunhelpfulway.
Changingone’smindabouthumannatureishardwork,andchangingone’smindfor
theworseaboutoneselfisevenharder.NisbettandBorgidasuspectedthatstudentswould
resisttheworkandtheunpleasantness.Ofcourse,thestudentswouldbeableandwilling
to recite the details of the helping experiment on a test, and would even repeat the
“official”interpretationintermsofdiffusionofresponsibility.Butdidtheirbeliefsabout
human nature really change? To find out, Nisbett and Borgida showed them videos of
brief interviews allegedly conducted with two people who had participated in the New
Yorkstudy.Theinterviewswereshortandbland.Theintervieweesappearedtobenice,
normal,decentpeople.Theydescribedtheirhobbies,theirspare-timeactivities,andtheir
plans for the future, which were entirely conventional. After watching the video of an
interview,thestudentsguessedhowquicklythatparticularpersonhadcometotheaidof
thestrickenstranger.
ToapplyBayesianreasoningtothetaskthestudentswereassigned,youshouldfirstask
yourselfwhatyouwouldhaveguessedabouttheastwoindividualsifyouhadnotseen
theirinterviews.Thisquestionisansweredbyconsultingthebaserate.Wehavebeentold
thatonly4ofthe15participantsintheexperimentrushedtohelpafterthefirstrequest.
Theprobabilitythatanunidentifiedparticipanthadbeenimmediatelyhelpfulistherefore
27%.Thusyourpriorbeliefaboutanyunspecifiedparticipantshouldbethathedidnot
rushto help. Next,Bayesian logic requiresyou to adjustyour judgment inlight of any
relevantinformationabouttheindividual.However,thevideoswerecarefullydesignedto
beuninformative;theyprovidednoreasontosuspectthattheindividualswouldbeeither
more or less helpful than a randomly chosen student. In the absence of useful new
information,theBayesiansolutionistostaywiththebaserates.
NisbettandBorgidaaskedtwogroupsofstudentstowatchthevideosandpredictthe
behaviorofthetwoindividuals.Thestudentsinthefirstgroupweretoldonlyaboutthe
procedureofthehelpingexperiment,notaboutitsresults.Theirpredictionsreflectedtheir
viewsofhumannatureandtheirunderstandingofthesituation.Asyoumightexpect,they
predicted that both individuals would immediately rush to the victim’s aid. The second
group of students knew both the procedure of the experiment and its results. The
comparison of the predictions of the two groups provides an answer to a significant
question: Did students learn from the results of the helping experiment anything that
significantlychangedtheirwayofthinking?Theanswerisstraightforward:theylearned
nothingatall.Theirpredictionsaboutthetwoindividualswereindistinguishablefromthe
predictions made by students who had not been exposed to the statistical results of the
experiment.Theyknewthebaserateinthegroup from which theindividualshadbeen
drawn,buttheyremainedconvincedthatthepeopletheysawonthevideohadbeenquick
tohelpthestrickenstranger.
Forteachersofpsychology,theimplicationsofthisstudyaredisheartening.Whenwe
teachourstudentsaboutthebehaviorofpeopleinthehelpingexperiment,weexpectthem
tolearnsomethingtheyhadnotknownbefore;wewishtochangehowtheythinkabout
people’sbehaviorinaparticularsituation.ThisgoalwasnotaccomplishedintheNisbett-
Borgidastudy,andthereisnoreasontobelievethattheresultswouldhavebeendifferent
if they had chosen another surprising psychological experiment. Indeed, Nisbett and
Borgidareportedsimilarfindingsinteachinganotherstudy,inwhichmildsocialpressure
caused people to accept much more painful electric shocks than most of us (and them)
wouldhaveexpected.Studentswhodonotdevelopanewappreciationforthepowerof
social setting have learned nothing of value from the experiment. The predictions they
make about random strangers, or about their own behavior, indicate that they have not
changedtheirviewofhowtheywouldhavebehaved.InthewordsofNisbettandBorgida,
students “quietly exempt themselves” (and their friends and acquaintances) from the
conclusionsofexperimentsthatsurprisethem.Teachersofpsychologyshouldnotdespair,
however,becauseNisbettandBorgidareportawaytomaketheirstudentsappreciatethe
pointofthehelpingexperiment.Theytookanewgroupofstudentsandtaughtthemthe
procedureoftheexperimentbutdidnottellthemthegroupresults.Theyshowedthetwo
videosandsimplytoldtheirstudentsthatthetwoindividualstheyhadjustseenhadnot
helped the stranger, then asked them to guess the global results. The outcome was
dramatic:thestudents’guesseswereextremelyaccurate.
Toteachstudentsanypsychologytheydidnotknowbefore,youmustsurprisethem.
But which surprise will do? Nisbett and Borgida found that when they presented their
studentswithasurprisingstatisticisalfact,thestudentsmanagedtolearnnothingatall.
Butwhenthestudentsweresurprisedbyindividualcases—twonicepeoplewhohadnot
helped—they immediately made the generalization and inferred that helping is more
difficultthantheyhadthought.NisbettandBorgidasummarizetheresultsinamemorable
sentence:
Subjects’unwillingnesstodeducetheparticularfromthegeneralwasmatchedonly
bytheirwillingnesstoinferthegeneralfromtheparticular.
This is a profoundly important conclusion. People who are taught surprising statistical
factsabouthumanbehaviormaybeimpressedtothepointoftellingtheirfriendsabout
whattheyhave heard,but this doesnot mean thattheir understanding ofthe worldhas
really changed. The test of learning psychology is whether your understanding of
situationsyouencounterhaschanged,notwhetheryouhavelearnedanewfact.Thereisa
deep gap between our thinking about statistics and our thinking about individual cases.
Statisticalresultswithacausalinterpretationhaveastrongereffectonourthinkingthan
noncausal information. But even compelling causal statistics will not change long-held
beliefsorbeliefsrootedinpersonalexperience.Ontheotherhand,surprisingindividual
cases have a powerful impact and are a more effective tool for teaching psychology
becausetheincongruitymustberesolvedandembeddedinacausalstory.Thatiswhythis
bookcontainsquestionsthatareaddressedpersonallytothereader.Youaremorelikelyto
learnsomethingbyfindingsurprisesinyourownbehaviorthanbyhearingsurprisingfacts
aboutpeopleingeneral.
SpeakingofCausesandStatistics
“Wecan’tassumethattheywillreallylearnanythingfrommerestatistics.Let’sshow
themoneortworepresentativeindividualcasestoinfluencetheirSystem1.”
“Noneedtoworryaboutthisstatisticalinformationbeingignored.Onthecontrary,it
willimmediatelybeusedtofeedastereotype.”
P
RegressiontotheMean
I had one of the most satisfying eureka experiences of my career while teaching flight
instructorsintheIsraeliAirForceaboutthepsychologyofeffectivetraining.Iwastelling
them about an important principle of skill training: rewards for improved performance
workbetterthanpunishmentofmistakes.Thispropositionissupportedbymuchevidence
fromresearchonpigeons,rats,humans,andotheranimals.
WhenIfinishedmyenthusiasticspeech,oneofthemostseasonedinstructorsinthe
groupraisedhishandandmadeashortspeechofhisown.Hebeganbyconcedingthat
rewardingimprovedperformancemightbegoodforthebirds,buthedeniedthatitwas
optimalforflightcadets.Thisiswhathesaid:“OnmanyoccasionsIhavepraisedflight
cadetsforcleanexecutionofsomeaerobaticmaneuver.Thenexttimetheytrythesame
maneuvertheyusuallydoworse.Ontheotherhand,Ihaveoftenscreamedintoacadet’s
earphoneforbadexecution,andingeneralhedoesbetterttaskyryabrtworeponhisnext
try. So please don’t tell us that reward works and punishment does not, because the
oppositeisthecase.”
This was a joyous moment of insight, when I saw in a new light a principle of
statistics that I had been teaching for years. The instructor was right—but he was also
completelywrong!Hisobservationwasastuteandcorrect:occasionsonwhichhepraised
a performance were likely to be followed by a disappointing performance, and
punishmentsweretypicallyfollowedbyanimprovement.Buttheinferencehehaddrawn
abouttheefficacyofrewardandpunishmentwascompletelyoffthemark.Whathehad
observed is known as regression to the mean, which in that case was due to random
fluctuations in the quality of performance. Naturally, he praised only a cadet whose
performancewasfar better thanaverage.Butthe cadetwasprobably just luckyonthat
particularattemptandthereforelikelytodeteriorateregardlessofwhetherornothewas
praised. Similarly, the instructor would shout into a cadet’s earphones only when the
cadet’sperformancewasunusuallybadandthereforelikelytoimproveregardlessofwhat
the instructor did. The instructor had attached a causal interpretation to the inevitable
fluctuationsofarandomprocess.
Thechallengecalledforaresponse,butalessoninthealgebraofpredictionwould
notbeenthusiasticallyreceived.Instead,Iusedchalktomarkatargetonthefloor.Iasked
every officer in the room to turn his back to the target and throw two coins at it in
immediate succession, without looking. We measured the distances from the target and
wrotethetworesultsofeachcontestantontheblackboard.Thenwerewrotetheresultsin
order,fromthebesttotheworstperformanceonthefirsttry.Itwasapparentthatmost
(butnotall)ofthosewhohaddonebestthefirsttimedeterioratedontheirsecondtry,and
thosewhohaddonepoorlyonthefirstattemptgenerallyimproved.Ipointedouttothe
instructorsthatwhattheysawontheboardcoincidedwithwhatwehadheardaboutthe
performance of aerobatic maneuvers on successive attempts: poor performance was
typicallyfollowedbyimprovementandgoodperformancebydeterioration,withoutany
helpfromeitherpraiseorpunishment.
ThediscoveryImadeonthatdaywasthattheflightinstructorsweretrappedinan
unfortunatecontingency:becausetheypunishedcadetswhenperformancewaspoor,they
were mostly rewarded by a subsequent improvement, even if punishment was actually
ineffective. Furthermore, the instructors were not alone in that predicament. I had
stumbled onto a significant fact of the human condition: the feedback to which life
exposesusisperverse.Becausewetendtobenicetootherpeoplewhentheypleaseus
andnastywhentheydonot,wearestatisticallypunishedforbeingniceandrewardedfor
beingnasty.
TalentandLuck
Afewyearsago,JohnBrockman,whoeditstheonlinemagazineEdge,askedanumberof
scientiststoreporttheir“favoriteequation.”Theseweremyofferings:
success=talent+luck
greatsuccess=alittlemoretalent+alotofluck
Theunsurprisingideathatluckoftencontributestosuccesshassurprisingconsequences
when we apply it to the first two days of a high-level golf tournament. To keep things
simple,assumethatonbothdaystheaveragescoreofthecompetitorswasatpar72.We
focusonaplayerwhodidveryedwellonthefirstday,closingwithascoreof66.What
canwelearnfromthatexcellentscore?Animmediateinferenceisthatthegolferismore
talentedthantheaverageparticipantinthetournament.Theformulaforsuccesssuggests
thatanotherinferenceisequallyjustified:thegolferwhodidsowellonday1probably
enjoyed better-than-average luck on that day. If you accept that talent and luck both
contributetosuccess,theconclusionthatthesuccessfulgolferwasluckyisaswarranted
astheconclusionthatheistalented.
Bythesametoken,ifyoufocusonaplayerwhoscored5overparonthatday,you
havereasontoinferboththatheisratherweakandhadabadday.Ofcourse,youknow
thatneitheroftheseinferencesiscertain.Itisentirelypossiblethattheplayerwhoscored
77isactuallyverytalentedbuthadanexceptionallydreadfulday.Uncertainthoughthey
are, the following inferences from the score on day 1 are plausible and will be correct
moreoftenthantheyarewrong.
above-averagescoreonday1=above-averagetalent+luckyonday1
and
below-averagescoreonday1=below-averagetalent+unluckyonday1
Now,supposeyouknowagolfersscoreonday1andareaskedtopredicthisscore
onday2.Youexpectthegolfertoretainthesameleveloftalentonthesecondday,so
yourbestguesseswillbe“aboveaverage”forthefirstplayerand“belowaverage”forthe
secondplayer.Luck,ofcourse,isadifferentmatter.Sinceyouhavenowayofpredicting
the golfers’ luck on the second (or any) day, your best guess must be that it will be
average,neithergoodnorbad.Thismeansthatintheabsenceofanyotherinformation,
your best guess about the players’ score on day 2 should not be a repeat of their
performanceonday1.Thisisthemostyoucansay:
Thegolferwhodidwellonday1islikelytobesuccessfulonday2aswell,butless
thanonthefirst,becausetheunusualluckheprobablyenjoyedonday1isunlikelyto
hold.
Thegolferwhodidpoorlyonday1willprobablybebelowaverageonday2,but
willimprove,becausehisprobablestreakofbadluckisnotlikelytocontinue.
We also expect the difference between the two golfers to shrink on the second day,
althoughourbestguessisthatthefirstplayerwillstilldobetterthanthesecond.
Mystudentswerealwayssurprisedtohearthatthebestpredictedperformanceonday
2ismoremoderate,closertotheaveragethantheevidenceonwhichitisbased(thescore
onday1).Thisiswhythepatterniscalledregressiontothemean.Themoreextremethe
originalscore,themoreregressionweexpect,becauseanextremelygoodscoresuggestsa
veryluckyday.Theregressivepredictionisreasonable,butitsaccuracyisnotguaranteed.
Afewofthegolferswhoscored66onday1willdoevenbetteronthesecondday,iftheir
luckimproves.Mostwilldoworse,becausetheirluckwillnolongerbeaboveaverage.
Nowletus go againstthetimearrow.Arrangetheplayersbytheirperformanceon
day2andlookattheirperformanceonday1.Youwillfindpreciselythesamepatternof
regressiontothemean.Thegolferswhodidbestonday2wereprobablyluckyonthat
day,andthebestguessisthattheyhadbeenlessluckyandhaddonefilesswellonday1.
Thefactthatyouobserveregressionwhenyoupredictanearlyeventfromalaterevent
shouldhelpconvinceyouthatregressiondoesnothaveacausalexplanation.
Regression effects are ubiquitous, and so are misguided causal stories to explain
them. A well-known example is the Sports Illustrated jinx,” the claim that an athlete
whose picture appears on the cover of the magazine is doomed to perform poorly the
followingseason.Overconfidenceandthepressureofmeetinghighexpectationsareoften
offeredasexplanations.Butthereisasimpleraccountofthejinx:anathletewhogetsto
be on the cover of Sports Illustrated must have performed exceptionally well in the
precedingseason,probablywiththeassistanceofanudgefromluck—andluckisfickle.
Ihappenedtowatchthemen’sskijumpeventintheWinterOlympicswhileAmos
andIwerewritinganarticleaboutintuitiveprediction.Eachathletehastwojumpsinthe
event, and the results are combined for the final score. I was startled to hear the
sportscasters comments while athletes were preparing for their second jump: “Norway
hadagreatfirstjump;hewillbetense,hopingtoprotecthisleadandwillprobablydo
worse”or“Swedenhadabadfirstjumpandnowheknowshehasnothingtoloseandwill
berelaxed,whichshouldhelphimdobetter.”Thecommentatorhadobviouslydetected
regressiontothemeanandhadinventedacausalstoryforwhichtherewasnoevidence.
Thestoryitselfcouldevenbetrue.Perhapsifwemeasuredtheathletes’pulsebeforeeach
jumpwemightfindthattheyareindeedmorerelaxedafterabadfirstjump.Andperhaps
not.Thepointtorememberisthatthechangefromthefirsttothesecondjumpdoesnot
needacausalexplanation.Itisamathematicallyinevitableconsequenceofthefactthat
luck played a role in the outcome of the first jump. Not a very satisfactory story—we
wouldallpreferacausalaccount—butthatisallthereis.
UnderstandingRegression
Whetherundetectedorwronglyexplained,thephenomenonofregressionisstrangetothe
humanmind.Sostrange,indeed,thatitwasfirstidentifiedandunderstoodtwohundred
yearsafterthetheoryofgravitationanddifferentialcalculus.Furthermore,ittookoneof
the best minds of nineteenth-century Britain to make sense of it, and that with great
difficulty.
Regressiontothemeanwasdiscoveredandnamedlateinthenineteenthcenturyby
SirFrancisGalton,ahalfcousinofCharlesDarwinandarenownedpolymath.Youcan
sensethethrillofdiscoveryinanarticlehepublishedin1886underthetitle“Regression
towards Mediocrity in Hereditary Stature,” which reports measurements of size in
successivegenerationsofseedsandincomparisonsoftheheightofchildrentotheheight
oftheirparents.Hewritesabouthisstudiesofseeds:
Theyyieldedresultsthatseemedverynoteworthy,andIusedthemasthebasisofa
lecture before the Royal Institution on February 9th, 1877. It appeared from these
experimentsthattheoffspringdidnottendtoresembletheirparentseedsinsize,but
tobealwaysmoremediocrethanthey—tobesmallerthantheparents,iftheparents
were large; to be larger than the parents, if the parents were very small…The
experimentsshowed further thatthe meanfilial regression towardsmediocrity was
directlyproportionaltotheparentaldeviationfromit.
Galton obviously expected his learned audience at the Royal Institution—the oldest
independent research society in the world—to be as surprised by his “noteworthy
observation” as he had been. What is truly noteworthy is that he was surprised by a
statisticalregularity thatis as common as theair we breathe. Regression effects can be
foundwhereverwelook,butwedonotrecognizethemforwhattheyare.Theyhidein
plain sight. It took Galton several years to work his way from his discovery of filial
regression in size to the broader notion that regression inevitably occurs when the
correlationbetweentwomeasuresislessthanperfect,andheneededthehelpofthemost
brilliantstatisticiansofhistimetoreachthatconclusion.
OneofthehurdlesGaltonhadtoovercomewastheproblemofmeasuringregression
betweenvariablesthataremeasuredondifferentscales,suchasweightandpianoplaying.
Thisisdonebyusingthepopulationasastandardofreference.Imaginethatweightand
pianoplayinghavebeenmeasuredfor100childreninallgradesofanelementaryschool,
andthattheyhavebeenrankedfromhightolowoneachmeasure.IfJaneranksthirdin
piano playing and twenty-seventh in weight, it is appropriate to say that she is a better
pianistthansheistall.Letusmakesomeassumptionsthatwillsimplifythings:
Atanyage,
Piano-playingsuccessdependsonlyonweeklyhoursofpractice.
Weightdependsonlyonconsumptionoficecream.
Icecreamconsumptionandweeklyhoursofpracticeareunrelated.
Now, using ranks (or the standard scores that statisticians prefer), we can write some
equations:
weight=age+icecreamconsumption
pianoplaying=age+weeklyhoursofpractice
Youcanseethattherewillberegressiontothemeanwhenwepredictpianoplayingfrom
weight,orviceversa.IfallyouknowaboutTomisthatherankstwelfthinweight(well
aboveaverage),youcaninfer(statistically)thatheisprobablyolderthanaverageandalso
that he probably consumes more ice cream than other children. If all you know about
Barbaraisthatsheiseighty-fifthinpiano(farbelowtheaverageofthegroup),youcan
inferthatsheislikelytobeyoungandthatsheislikelytopracticelessthanmostother
children.
Thecorrelationcoefficientbetweentwomeasures,whichvariesbetween0and1,isa
measureoftherelativeweightofthefactorstheyshare.Forexample,weallsharehalfour
genes with each of our parents, and for traits in which environmental factors have
relativelylittleinfluence,suchasheight,thecorrelationbetweenparentandchildisnot
farfrom.50.Toappreciatethemeaningofthecorrelationmeasure,thefollowingaresome
examplesofcoefficients:
ThecorrelationbetweenthesizeofobjectsmeasuredwithprecisioninEnglishorin
metricunitsis1.Anyfactorthatinfluencesonemeasurealsoinfluencestheother;
100%ofdeterminantsareshared.
The correlation between self-reported height and weight among adult American
males is .41. If you included women and children, the correlation would be much
higher,becauseindividuals’genderandageinfluenceboththeirheightannwdtheir
weight,boostingtherelativeweightofsharedfactors.
ThecorrelationbetweenSATscoresandcollegeGPAisapproximately.60.However,
thecorrelationbetweenaptitudetestsandsuccessingraduateschoolismuchlower,
largelybecausemeasuredaptitudevarieslittleinthisselectedgroup.Ifeveryonehas
similar aptitude, differences in this measure are unlikely to play a large role in
measuresofsuccess.
The correlation between income and education level in the United States is
approximately.40.
Thecorrelationbetweenfamilyincomeandthelastfourdigitsoftheirphonenumber
is0.
IttookFrancisGaltonseveralyearstofigureoutthatcorrelationandregressionare
nottwoconcepts—theyaredifferentperspectivesonthesameconcept.Thegeneralruleis
straightforward but has surprising consequences: whenever the correlation between two
scoresisimperfect,therewillberegressiontothemean.ToillustrateGalton’sinsight,take
apropositionthatmostpeoplefindquiteinteresting:
Highlyintelligentwomentendtomarrymenwhoarelessintelligentthantheyare.
Youcangetagoodconversationstartedatapartybyaskingforanexplanation,andyour
friends will readily oblige. Even people who have had some exposure to statistics will
spontaneously interpret the statement in causal terms. Some may think of highly
intelligentwomenwantingtoavoidthecompetitionofequallyintelligentmen,orbeing
forced to compromise in their choice of spouse because intelligent men do not want to
competewithintelligentwomen.More far-fetched explanationswillcomeupat agood
party.Nowconsiderthisstatement:
Thecorrelationbetweentheintelligencescoresofspousesislessthanperfect.
This statement is obviously true and not interesting at all. Who would expect the
correlation to be perfect? There is nothing to explain. But the statement you found
interesting and the statement you found trivial are algebraically equivalent. If the
correlationbetweentheintelligenceofspousesislessthanperfect(andifmenandwomen
onaveragedonotdifferinintelligence),thenitisamathematicalinevitabilitythathighly
intelligentwomen will be marriedto husbandswho areon averageless intelligentthan
theyare(andviceversa,ofcourse).Theobservedregressiontothemeancannotbemore
interestingormoreexplainablethantheimperfectcorrelation.
You probably sympathize with Galton’s struggle with the concept of regression.
Indeed,thestatisticianDavidFreedmanusedtosaythatifthetopicofregressioncomes
upinacriminalorciviltrial,thesidethatmustexplainregressiontothejurywilllosethe
case.Why isit sohard? Themain reasonfor thedifficultyisa recurrenttheme ofthis
book:ourmindisstronglybiasedtowardcausalexplanationsanddoesnotdealwellwith
“merestatistics.”Whenourattentioniscalledtoanevent,associativememorywilllook
for its cause—more precisely, activation will automatically spread to any cause that is
already stored in memory. Causal explanations will be evoked when regression is
detected,buttheywillbewrongbecausethetruthisthatregressiontothemeanhasan
explanationbutdoesnothaveacause.Theeventthatattractsourattentioninthegolfing
tournament is the frequent deterioration of the performance of the golfers who werecte
successfulonday1.Thebestexplanationofitisthatthosegolferswereunusuallylucky
thatday,butthisexplanationlacksthecausalforcethatourmindsprefer.Indeed,wepay
people quite well to provide interesting explanations of regression effects. A business
commentator who correctly announces that “the business did better this year because it
haddonepoorlylastyear”islikelytohaveashorttenureontheair.
OurdifficultieswiththeconceptofregressionoriginatewithbothSystem1andSystem2.
Withoutspecialinstruction,andinquiteafewcasesevenaftersomestatisticalinstruction,
the relationship between correlation and regression remains obscure. System 2 finds it
difficult to understand and learn. This is due in part to the insistent demand for causal
interpretations,whichisafeatureofSystem1.
Depressedchildrentreatedwithanenergydrinkimprovesignificantlyoverathree-
monthperiod.
Imadeupthisnewspaperheadline,butthefactitreportsistrue:ifyoutreatedagroupof
depressed children for some time with an energy drink, they would show a clinically
significantimprovement.Itisalsothecasethatdepressedchildrenwhospendsometime
standingontheirheadorhugacatfortwentyminutesadaywillalsoshowimprovement.
Mostreaders of such headlines willautomatically inferthat the energydrink or the cat
huggingcausedanimprovement,butthisconclusioniscompletelyunjustified.Depressed
children are an extreme group, they are more depressed than most other children—and
extremegroupsregresstothemeanovertime.Thecorrelationbetweendepressionscores
onsuccessiveoccasionsoftestingislessthanperfect,sotherewillberegressiontothe
mean:depressedchildrenwillgetsomewhatbetterovertimeeveniftheyhugnocatsand
drinknoRedBull.Inordertoconcludethatanenergydrink—oranyothertreatment—is
effective,youmustcompareagroupofpatientswhoreceivethistreatmenttoa“control
group” that receives no treatment (or, better, receives a placebo). The control group is
expectedtoimprovebyregressionalone,andtheaimoftheexperimentistodetermine
whetherthetreatedpatientsimprovemorethanregressioncanexplain.
Incorrectcausalinterpretationsofregressioneffectsarenotrestrictedtoreadersofthe
popular press. The statistician Howard Wainer has drawn up a long list of eminent
researcherswhohavemadethesamemistake—confusingmerecorrelationwithcausation.
Regressioneffectsareacommonsourceoftroubleinresearch,andexperiencedscientists
developahealthyfearofthetrapofunwarrantedcausalinference.
One of my favorite examples of the errors of intuitive prediction is adapted from Max
Bazerman’sexcellenttextJudgmentinManagerialDecisionMaking:
Youarethesalesforecasterforadepartmentstorechain.Allstoresaresimilarinsize
andmerchandiseselection,buttheirsalesdifferbecauseoflocation,competition,and
random factors. You are given the results for 2011 and asked to forecast sales for
2012.Youhavebeeninstructedtoaccepttheoverallforecastofeconomiststhatsales
willincreaseoverallby10%.Howwouldyoucompletethefollowingtable?
Store 2011 2012
1 $11,000,000 ________
2 $23,000,000 ________
3 $18,000,000 ________
4 $29,000,000 ________
Total $61,000,000 $67,100,000
Havingreadthischapter,youknowthattheobvioussolutionofadding10%tothe
sales of each store is wrong. You want your forecasts to be regressive, which requires
adding more than 10% to the low-performing branches and adding less (or even
subtracting)toothers.Butifyouaskotherpeople,youarelikelytoencounterpuzzlement:
Whydoyoubotherthemwithanobviousquestion?AsGaltonpainfullydiscovered,the
conceptofregressionisfarfromobvious.
SpeakingofRegressiontoMediocrity
“Shesaysexperiencehastaughtherthatcriticismismoreeffectivethanpraise.What
shedoesn’tunderstandisthatit’sallduetoregressiontothemean.”
“Perhapshissecondinterviewwaslessimpressivethanthefirstbecausehewas
afraidofdisappointingus,butmorelikelyitwashisfirstthatwasunusuallygood.”
“Ourscreeningprocedureisgoodbutnotperfect,soweshouldanticipateregression.
We shouldn’t be surprised that the very best candidates often fail to meet our
expectations.”
P
TamingIntuitivePredictions
Life presents us with many occasions to forecast. Economists forecast inflation and
unemployment, financial analysts forecast earnings, military experts predict casualties,
venture capitalists assess profitability, publishers and producers predict audiences,
contractorsestimatethetimerequiredtocompleteprojects,chefsanticipatethedemand
for the dishes on their menu, engineers estimate the amount of concrete needed for a
building,firegroundcommandersassessthenumberoftrucksthatwillbeneededtoput
outafire.Inourprivatelives,weforecastourspouse’sreactiontoaproposedmoveorour
ownfutureadjustmenttoanewjob.
Somepredictivejudgments,suchasthosemadebyengineers,relylargelyonlook-up
tables, precise calculations, and explicit analyses of outcomes observed on similar
occasions.OthersinvolveintuitionandSystem1,intwomainvarieties.Someintuitions
draw primarily on skill and expertise acquired by repeated experience. The rapid and
automatic judgments and choices of chess masters, fireground commanders, and
physicians that Gary Klein has described in Sources of Power and elsewhere illustrate
theseskilledintuitions,inwhichasolutiontothecurrentproblemcomestomindquickly
becausefamiliarcuesarerecognized.
Other intuitions, which are sometimes subjectively indistinguishable from the first,
arisefromtheoperationofheuristicsthatoftensubstituteaneasyquestionfortheharder
onethatwasasked.Intuitivejudgmentscanbemadewithhighconfidenceevenwhenthey
arebased onnonregressive assessmentsof weak evidence. Of course,many judgments,
especially in the professional domain, are influenced by a combination of analysis and
intuition.
NonregressiveIntuitions
Letusreturntoapersonwehavealreadymet:
Julieiscurrentlyaseniorinastateuniversity.Shereadfluentlywhenshewasfour
yearsold.Whatishergradepointaverage(GPA)?
People who are familiar with the American educational scene quickly come up with a
number, which is often in the vicinity of 3.7 or 3.8. How does this occur? Several
operationsofSystem1areinvolved.
Acausallinkbetweentheevidence(Julie’sreading)andthetargetoftheprediction
(herGPA)issought.Thelinkcanbeindirect.Inthisinstance,earlyreadinganda
highGDParebothindicationsofacademictalent.Someconnectionisnecessary.You
(yourSystem2)wouldprobablyrejectasirrelevantareportofJuliewinningafly
fishing competitiowhired D=n or excelling at weight lifting in high school. The
process is effectively dichotomous. We are capable of rejecting information as
irrelevant or false, but adjusting for smaller weaknesses in the evidence is not
something that System 1 can do. As a result, intuitive predictions are almost
completelyinsensitivetotheactualpredictivequalityoftheevidence.Whenalinkis
found, as in the case of Julie’s early reading, WY SIATI applies: your associative
memory quickly and automatically constructs the best possible story from the
informationavailable.
Next,theevidenceisevaluatedinrelationtoarelevantnorm.Howprecociousisa
child who reads fluently at age four? What relative rank or percentile score
correspondstothisachievement?Thegrouptowhichthechildiscompared(wecall
itareferencegroup)isnotfullyspecified,butthisisalsotheruleinnormalspeech:if
someonegraduating from collegeis describedas “quiteclever”you rarelyneed to
ask,“Whenyousay‘quiteclever,’whichreferencegroupdoyouhaveinmind?”
The next step involves substitution and intensity matching. The evaluation of the
flimsyevidence of cognitiveabilityinchildhoodissubstitutedasananswertothe
questionabouthercollegeGPA.Juliewillbeassignedthesamepercentilescorefor
herGPAandforherachievementsasanearlyreader.
The question specified that the answer must be on the GPA scale, which requires
anotherintensity-matchingoperation,fromageneralimpressionofJulie’sacademic
achievementstotheGPAthatmatchestheevidenceforhertalent.Thefinalstepisa
translation,fromanimpressionofJulie’srelativeacademicstandingtotheGPAthat
correspondstoit.
Intensity matching yields predictions that are as extreme as the evidence on which
theyarebased,leadingpeopletogivethesameanswertotwoquitedifferentquestions:
WhatisJulie’spercentilescoreonreadingprecocity?
WhatisJulie’spercentilescoreonGPA?
BynowyoushouldeasilyrecognizethatalltheseoperationsarefeaturesofSystem1.
Ilistedthemhereasanorderlysequenceofsteps,butofcoursethespreadofactivationin
associativememorydoesnotworkthisway.Youshouldimagineaprocessofspreading
activation that is initially prompted by the evidence and the question, feeds back upon
itself,andeventuallysettlesonthemostcoherentsolutionpossible.
AmosandIonceaskedparticipantsinanexperimenttojudgedescriptionsofeightcollege
freshmen,allegedlywrittenbyacounseloronthebasisofinterviewsoftheenteringclass.
Eachdescriptionconsistedoffiveadjectives,asinthefollowingexample:
intelligent,self-confident,well-read,hardworking,inquisitive
Weaskedsomeparticipantstoanswertwoquestions:
Howmuchdoesthisdescriptionimpressyouwithrespecttoacademicability?
What percentage of descriptions of freshmen do you believe would impress you
more?
Thequestionsrequireyoutoevaluatetheevidencebycomparingthedescriptionto
yournormfordescriptionsofstudentsbycounselors.Theveryexistenceofsuchanormis
remarkable.Althoughyousurelydonotknowhowyouacquiredit,youhaveafairlyclear
senseofhowmuchenthusiasmthedescriptionconveys:thecounselorbelievesthatthis
student is good, but not spectacularly good. There is room for stronger adjectives than
intelligent(brilliant,creative),well-read(scholarly,erudite,impressivelyknowledgeable),
andhardworking(passionate,perfectionist).Theverdict:verylikelytobeinthetop15%
butunlikelytobeinthetop3%.Thereisimpressiveconsensusinsuchjudgments,atleast
withinaculture.
Theotherparticipantsinourexperimentwereaskeddifferentquestions:
Whatisyourestimateofthegradepointaveragethatthestudentwillobtain?
WhatisthepercentageoffreshmenwhoobtainahigherGPA?
You need another look to detect the subtle difference between the two sets of
questions.Thedifferenceshouldbeobvious,butitisnot.Unlikethefirstquestions,which
required you only to evaluate the evidence, the second set involves a great deal of
uncertainty. The question refers to actual performance at the end of the freshman year.
Whathappenedduringtheyearsincetheinterviewwasperformed?Howaccuratelycan
you predict the student’s actual achievements in the first year at college from five
adjectives?WouldthecounselorherselfbeperfectlyaccurateifshepredictedGPAfrom
aninterview?
The objective of this study was to compare the percentile judgments that the
participants made when evaluating the evidence in one case, and when predicting the
ultimate outcome in another. The results are easy to summarize: the judgments were
identical.Althoughthetwosetsofquestionsdiffer(oneisaboutthedescription,theother
aboutthestudent’sfutureacademicperformance),theparticipantstreatedthemasifthey
werethesame.AswasthecasewithJulie,thepredictionofthefutureisnotdistinguished
froman evaluationof current evidence—predictionmatches evaluation. Thisis perhaps
thebestevidencewehavefortheroleofsubstitution.Peopleareaskedforapredictionbut
they substitute an evaluation of the evidence, without noticing that the question they
answerisnottheonetheywereasked.Thisprocessisguaranteedtogeneratepredictions
thataresystematicallybiased;theycompletelyignoreregressiontothemean.
DuringmymilitaryserviceintheIsraeliDefenseForces,Ispentsometimeattached
toaunitthatselectedcandidatesforofficertrainingonthebasisofaseriesofinterviews
andfieldtests.Thedesignatedcriterionforsuccessfulpredictionwasacadet’sfinalgrade
inofficerschool.Thevalidityoftheratingswasknowntoberatherpoor(Iwilltellmore
aboutitinalaterchapter).Theunitstillexistedyearslater,whenIwasaprofessorand
collaboratingwithAmosinthestudyofintuitivejudgment.Ihadgoodcontactswiththe
peopleattheunitandaskedthemforafavor.Inadditiontotheusualgradingsystemthey
usedtoevaluatethecandidates,Iaskedfortheirbestguessofthegradethateachofthe
futurecadetswouldobtaininofficerschool.Theycollectedafewhundredsuchforecasts.
Theofficerswhohadproducedtheprediofрctionswereallfamiliarwiththelettergrading
systemthattheschoolappliedtoitscadetsandtheapproximateproportionsofAs,B’s,
etc.,amongthem.Theresultswerestriking:therelativefrequencyofAsandB’sinthe
predictionswasalmostidenticaltothefrequenciesinthefinalgradesoftheschool.
These findings provide a compelling example of both substitution and intensity
matching. The officers who provided the predictions completely failed to discriminate
betweentwotasks:
theirusualmission,whichwastoevaluatetheperformanceofcandidatesduringtheir
stayattheunit
the task I had asked them to perform, which was an actual prediction of a future
grade
They had simply translated their own grades onto the scale used in officer school,
applying intensity matching. Once again, the failure to address the (considerable)
uncertainty of their predictions had led them to predictions that were completely
nonregressive.
ACorrectionforIntuitivePredictions
BacktoJulie,ourprecociousreader.ThecorrectwaytopredictherGPAwasintroduced
inthepreceding chapter. AsI did thereforgolf onsuccessivedays and forweightand
pianoplaying,Iwriteaschematicformulaforthefactorsthatdeterminereadingageand
collegegrades:
readingage=sharedfactors+factorsspecifictoreadingage=100%
GPA=sharedfactors+factorsspecifictoGPA=100%
Thesharedfactorsinvolvegeneticallydeterminedaptitude,thedegreetowhichthefamily
supports academic interests, and anything else that would cause the same people to be
precocious readers as children and academically successful as young adults. Of course
thereare manyfactors thatwould affectone ofthese outcomesand notthe other.Julie
couldhavebeenpushedtoreadearlybyoverlyambitiousparents,shemayhavehadan
unhappy love affair that depressed her college grades, she could have had a skiing
accidentduringadolescencethatleftherslightlyimpaired,andsoon.
Recall that the correlation between two measures—in the present case reading age
andGPA—isequaltotheproportionofsharedfactorsamongtheirdeterminants.Whatis
yourbestguessaboutthatproportion?Mymostoptimisticguessisabout30%.Assuming
this estimate, we have all we need to produce an unbiased prediction. Here are the
directionsforhowtogetthereinfoursimplesteps:
1. StartwithanestimateofaverageGPA.
2. DeterminetheGPAthatmatchesyourimpressionoftheevidence.
3. EstimatethecorrelationbetweenyourevidenceandGPA.
4. Ifthecorrelationis.30,move30%ofthedistancefromtheaveragetothematching
GPA.
Step1getsyouthebaseline,theGPAyouwouldhavepredictedifyouweretoldnothing
aboutJuliebeyondthefactthatsheisagraduatingsenior.Intheabsenceofinformation,
you would have predicted the average. (This is similar to assigning the base-rate
probability of business administration grahavрduates when you are told nothing about
Tom W.) Step 2 is your intuitive prediction, which matches your evaluation of the
evidence.Step3movesyoufromthebaselinetowardyourintuition,butthedistanceyou
areallowedtomovedependsonyourestimateofthecorrelation.Youendup,atstep4,
withapredictionthatisinfluencedbyyourintuitionbutisfarmoremoderate.
Thisapproachtopredictionisgeneral.Youcanapplyitwheneveryouneedtopredict
a quantitative variable, such as GPA, profit from an investment, or the growth of a
company.Theapproachbuildsonyourintuition,butitmoderatesit,regressesittoward
themean.Whenyouhavegoodreasonstotrusttheaccuracyofyourintuitiveprediction—
a strong correlation between the evidence and the prediction—the adjustment will be
small.
Intuitive predictions need to be corrected because they are not regressive and
thereforearebiased.SupposethatIpredictforeachgolferinatournamentthathisscore
on day 2 will be the same as his score on day 1. This prediction does not allow for
regressiontothemean:thegolferswhofaredwellonday1willonaveragedolesswell
on day 2, and those who did poorly will mostly improve. When they are eventually
comparedtoactualoutcomes,nonregressivepredictionswillbefoundtobebiased.They
are on average overly optimistic for those who did best on the first day and overly
pessimisticforthosewhohadabadstart.Thepredictionsareasextremeastheevidence.
Similarly, if you use childhood achievements to predict grades in college without
regressingyourpredictionstowardthemean,youwillmoreoftenthannotbedisappointed
bytheacademicoutcomesofearlyreadersandhappilysurprisedbythegradesofthose
who learned to read relatively late. The corrected intuitive predictions eliminate these
biases,sothatpredictions(bothhighandlow)areaboutequallylikelytooverestimateand
tounderestimatethetruevalue.Youstillmakeerrorswhenyourpredictionsareunbiased,
buttheerrorsaresmalleranddonotfavoreitherhighorlowoutcomes.
ADefenseofExtremePredictions?
IintroducedTomWearliertoillustratepredictionsofdiscreteoutcomessuchasfieldof
specialization or success in an examination, which are expressed by assigning a
probabilitytoaspecifiedevent(orinthatcasebyrankingoutcomesfromthemosttothe
leastprobable).Ialsodescribedaprocedurethatcountersthecommonbiasesofdiscrete
prediction:neglectofbaseratesandinsensitivitytothequalityofinformation.
Thebiaseswefindinpredictionsthatareexpressedonascale,suchasGPAorthe
revenue of a firm, are similar to the biases observed in judging the probabilities of
outcomes.
Thecorrectiveproceduresarealsosimilar:
Bothcontainabaselineprediction,whichyouwouldmakeifyouknewnothingabout
thecaseathand.Inthecategoricalcase,itwasthebaserate.Inthenumericalcase,it
istheaverageoutcomeintherelevantcategory.
Bothcontainanintuitiveprediction,whichexpressesthenumberthatcomestoyour
mind,whetheritisaprobabilityoraGPA.
Inbothcases,youaimforapredictionthatisintermediatebetweenthebaselineand
yourintuitiveresponse.
Inthedefaultcaseofnousefulevidence,youstaywiththebaseline.
Attheotherextreme,youalsostaywithyourinitialpredictiononsр.Thiswillhappen,
ofcourse,onlyifyouremaincompletelyconfidentinyourinitialpredictionaftera
criticalreviewoftheevidencethatsupportsit.
Inmostcasesyouwillfindsomereasontodoubtthatthecorrelationbetweenyour
intuitivejudgmentandthetruthisperfect,andyouwillendupsomewherebetween
thetwopoles.
Thisprocedureisanapproximationofthelikelyresultsofanappropriatestatistical
analysis. If successful, it will move you toward unbiased predictions, reasonable
assessments of probability, and moderate predictions of numerical outcomes. The two
procedures are intended to address the same bias: intuitive predictions tend to be
overconfidentandoverlyextreme.
CorrectingyourintuitivepredictionsisataskforSystem2.Significanteffortisrequiredto
find the relevant reference category, estimate the baseline prediction, and evaluate the
qualityoftheevidence.Theeffortisjustifiedonlywhenthestakesarehighandwhenyou
areparticularlykeennottomakemistakes.Furthermore,youshouldknowthatcorrecting
yourintuitionsmaycomplicateyourlife.Acharacteristicofunbiasedpredictionsisthat
they permit the prediction of rare or extreme events only when the information is very
good. If you expect your predictions to be of modest validity, you will never guess an
outcomethatiseitherrareorfarfromthemean.Ifyourpredictionsareunbiased,youwill
neverhavethesatisfyingexperienceofcorrectlycallinganextremecase.Youwillnever
beabletosay,“Ithoughtso!”whenyourbeststudentinlawschoolbecomesaSupreme
Courtjustice,orwhenastart-upthatyouthoughtverypromisingeventuallybecomesa
majorcommercialsuccess.Giventhelimitationsoftheevidence,youwillneverpredict
thatanoutstandinghighschoolstudentwillbeastraight-AstudentatPrinceton.Forthe
samereason,aventure capitalist will neverbetoldthatthe probabilityofsuccessfora
start-upinitsearlystagesis“veryhigh.”
The objections to the principle of moderating intuitive predictions must be taken
seriously, because absence of bias is not always what matters most. A preference for
unbiasedpredictionsisjustifiedifallerrorsofpredictionaretreatedalike,regardlessof
their direction. But there are situations in which one type of error is much worse than
another.Whenaventurecapitalistlooksfor“thenextbigthing,”theriskofmissingthe
next Google or Facebook is far more important than the risk of making a modest
investmentinastart-upthatultimatelyfails.Thegoalofventurecapitalistsistocallthe
extreme cases correctly, even at the cost of overestimating the prospects of many other
ventures. For a conservative banker making large loans, the risk of a single borrower
going bankrupt may outweigh the risk of turning down several would-be clients who
would fulfill their obligations. In such cases, the use of extreme language (“very good
prospect,” “serious risk of default”) may have some justification for the comfort it
provides,eveniftheinformationonwhichthesejudgmentsarebasedisofonlymodest
validity.
Forarationalperson,predictionsthatareunbiasedandmoderateshouldnotpresenta
problem.Afterall,therationalventurecapitalistknowsthateventhemostpromisingstart-
ups have only a moderate chance of success. She views her job as picking the most
promisingbetsfromthebetsthatareavailableanddoesnotfeeltheneedtodeludeherself
about the prospects of a start-up in which she plans to invest. Similarly, rational
individualspredictingtherevenueofafirmwillnotbeboundtoasingleysрnumber—
theyshouldconsidertherangeofuncertaintyaroundthemostlikelyoutcome.Arational
personwillinvestalargesuminanenterprisethatismostlikelytofailiftherewardsof
successarelargeenough,withoutdeludingherselfaboutthechancesofsuccess.However,
we are not all rational, and some of us may need the security of distorted estimates to
avoid paralysis. If you choose to delude yourself by accepting extreme predictions,
however,youwilldowelltoremainawareofyourself-indulgence.
PerhapsthemostvaluablecontributionofthecorrectiveproceduresIproposeisthat
theywillrequireyoutothinkabouthowmuchyouknow.Iwilluseanexamplethatis
familiarintheacademicworld,buttheanalogiestootherspheresoflifeareimmediate.A
department is about to hire a young professor and wants to choose the one whose
prospects for scientific productivity are the best. The search committee has narrowed
downthechoicetotwocandidates:
Kim recently completed her graduate work. Her recommendations are spectacular
andshegave a brillianttalkandimpressedeveryoneinherinterviews.Shehasno
substantialtrackrecordofscientificproductivity.
Jane has held a postdoctoral position for the last three years. She has been very
productiveandherresearchrecordisexcellent,buthertalkandinterviewswereless
sparklingthanKim’s.
TheintuitivechoicefavorsKim,becausesheleftastrongerimpression,andWYSIATI.
ButitisalsothecasethatthereismuchlessinformationaboutKimthanaboutJane.We
arebacktothelawofsmallnumbers.Ineffect,youhaveasmallersampleofinformation
fromKimthanfromJane,andextremeoutcomesaremuchmorelikelytobeobservedin
small samples. There is more luck in the outcomes of small samples, and you should
therefore regress your prediction more deeply toward the mean in your prediction of
Kim’sfutureperformance.WhenyouallowforthefactthatKimislikelytoregressmore
thanJane,youmightendupselectingJanealthoughyouwerelessimpressedbyher.In
the context of academic choices, I would vote for Jane, but it would be a struggle to
overcomemyintuitiveimpressionthatKimismorepromising.Followingourintuitionsis
morenatural,andsomehowmorepleasant,thanactingagainstthem.
You can readily imagine similar problems in different contexts, such as a venture
capitalistchoosingbetweeninvestmentsintwostart-upsthatoperateindifferentmarkets.
Onestart-uphas a productforwhich demandcanbeestimated with fairprecision.The
other candidate is more exciting and intuitively promising, but its prospects are less
certain.Whetherthebestguessabouttheprospectsofthesecondstart-upisstillsuperior
whentheuncertaintyisfactoredinisaquestionthatdeservescarefulconsideration.
ATwo-SystemsViewofRegression
Extremepredictionsandawillingnesstopredictrareeventsfromweakevidenceareboth
manifestations of System 1. It is natural for the associative machinery to match the
extremenessofpredictionstotheperceivedextremenessofevidenceonwhichitisbased
—thisishowsubstitutionworks.AnditisnaturalforSystem1togenerateoverconfident
judgments,becauseconfidence,aswehaveseen,isdeterminedbythecoherenceofthe
beststoryyoucantellfromtheevidenceathand.Bewarned:yourintuitionswilldeliver
predictionsthataretooextremeandyouwillbeinclineheрdtoputfartoomuchfaithin
them.
RegressionisalsoaproblemforSystem2.Theveryideaofregressiontothemeanis
alien and difficult to communicate and comprehend. Galton had a hard time before he
understoodit.Manystatisticsteachersdreadtheclassinwhichthetopiccomesup,and
theirstudentsoftenendupwithonlyavagueunderstandingofthiscrucialconcept.Thisis
acasewhereSystem2requiresspecialtraining.Matchingpredictionstotheevidenceis
notonlysomethingwedointuitively;italsoseemsareasonablethingtodo.Wewillnot
learntounderstandregressionfromexperience.Evenwhenaregressionisidentified,as
wesawinthestoryoftheflightinstructors,itwillbegivenacausalinterpretationthatis
almostalwayswrong.
SpeakingofIntuitivePredictions
“That start-up achieved an outstanding proof of concept, but we shouldn’t expect
themtodoaswellinthefuture.Theyarestillalongwayfromthemarketandthere
isalotofroomforregression.”
“Ourintuitivepredictionisveryfavorable,butitisprobablytoohigh.Let’stakeinto
accountthestrengthofourevidenceandregressthepredictiontowardthemean.”
“Theinvestmentmaybeagoodidea,evenifthebestguessisthatitwillfail.Let’s
notsaywereallybelieveitisthenextGoogle.”
“Ireadonereviewofthatbrandanditwasexcellent.Still,thatcouldhavebeena
fluke.Let’sconsideronlythebrandsthathavealargenumberofreviewsandpickthe
onethatlooksbest.”
P
Part3
P
Overconfidence
P
TheIllusionofUnderstanding
Thetrader-philosopher-statisticianNassimTalebcouldalsobeconsideredapsychologist.
InThe Black Swan, Taleb introduced the notion of a narrative fallacy to describe how
flawedstoriesofthepastshapeourviewsoftheworldandourexpectationsforthefuture.
Narrative fallacies arise inevitably from our continuous attempt to make sense of the
world.Theexplanatorystoriesthatpeoplefindcompellingaresimple;areconcreterather
thanabstract;assignalargerroletotalent,stupidity,andintentionsthantoluck;andfocus
onafewstrikingeventsthathappenedratherthanonthecountlesseventsthatfailedto
happen.Anyrecentsalienteventisacandidatetobecomethekernelofacausalnarrative.
Talebsuggeststhatwehumansconstantlyfoolourselvesbyconstructingflimsyaccounts
ofthepastandbelievingtheyaretrue.
Goodstoriesprovideasimpleandcoherentaccount>
Acompellingnarrativefostersanillusionofinevitability.Considerthestoryofhow
Googleturnedintoagiantofthetechnologyindustry.Twocreativegraduatestudentsin
thecomputersciencedepartmentatStanfordUniversitycomeupwithasuperiorwayof
searchinginformationontheInternet.Theyseekandobtainfundingtostartacompany
andmakeaseriesofdecisionsthatworkoutwell.Withinafewyears,thecompanythey
started is one of the most valuable stocks in America, and the two former graduate
students are among the richest people on the planet. On one memorable occasion, they
werelucky,whichmakesthestoryevenmorecompelling:ayearafterfoundingGoogle,
theywere willingto sell their company forless than$1 million, but the buyersaid the
price was too high. Mentioning the single lucky incident actually makes it easier to
underestimatethemultitudeofwaysinwhichluckaffectedtheoutcome.
A detailed history would specify the decisions of Google’s founders, but for our
purposes it suffices to say that almost every choice they made had a good outcome. A
morecompletenarrativewoulddescribetheactionsofthefirmsthatGoogledefeated.The
haplesscompetitorswouldappeartobeblind,slow,andaltogetherinadequateindealing
withthethreatthateventuallyoverwhelmedthem.
Iintentionallytoldthistaleblandly,butyougettheidea:thereisaverygoodstory
here.Fleshedoutinmoredetail,thestorycouldgiveyouthesensethatyouunderstand
whatmadeGooglesucceed;itwouldalsomakeyoufeelthatyouhavelearnedavaluable
generallessonaboutwhatmakesbusinessessucceed.Unfortunately,thereisgoodreason
tobelievethatyoursenseofunderstandingandlearningfromtheGooglestoryislargely
illusory. The ultimate test of an explanation is whether it would have made the event
predictableinadvance.NostoryofGoogle’sunlikelysuccesswillmeetthattest,because
nostorycanincludethemyriadofeventsthatwouldhavecausedadifferentoutcome.The
human mind does not deal well with nonevents. The fact that many of the important
eventsthatdidoccurinvolvechoicesfurthertemptsyoutoexaggeratetheroleofskilland
underestimate the part that luck played in the outcome. Because every critical decision
turnedoutwell,therecordsuggestsalmostflawlessprescience—butbadluckcouldhave
disruptedanyoneofthesuccessfulsteps.Thehaloeffectaddsthefinaltouches,lending
anauraofinvincibilitytotheheroesofthestory.
Likewatchingaskilledrafteravoidingonepotentialcalamityafteranotherashegoes
downtherapids,theunfoldingoftheGooglestoryisthrillingbecauseoftheconstantrisk
of disaster. However, there is foр an instructive difference between the two cases. The
skilledrafterhasgonedownrapidshundredsoftimes.Hehaslearnedtoreadtheroiling
water in front of him and to anticipate obstacles. He has learned to make the tiny
adjustments of posture that keep him upright. There are fewer opportunities for young
mentolearnhowtocreateagiantcompany,andfewerchancestoavoidhiddenrocks—
suchasabrilliantinnovationbyacompetingfirm.Ofcoursetherewasagreatdealofskill
intheGooglestory,butluckplayedamoreimportantroleintheactualeventthanitdoes
inthetellingofit.Andthemoreluckwasinvolved,thelessthereistobelearned.
At work here is that powerful WY SIATI rule. You cannot help dealing with the
limitedinformationyouhaveasifitwereallthereistoknow.Youbuildthebestpossible
story from the information available to you, and if it is a good story, you believe it.
Paradoxically,itiseasiertoconstructacoherentstorywhenyouknowlittle,whenthere
arefewerpieces to fitintothe puzzle. Ourcomfortingconvictionthat theworldmakes
senserestsonasecurefoundation:ouralmostunlimitedabilitytoignoreourignorance.
Ihaveheardoftoomanypeoplewho“knewwellbeforeithappenedthatthe2008
financialcrisiswasinevitable.”Thissentencecontainsahighlyobjectionableword,which
shouldberemovedfromourvocabularyindiscussionsofmajorevents.Thewordis,of
course,knew.Somepeoplethoughtwellinadvancethattherewouldbeacrisis,butthey
didnotknowit.Theynowsaytheyknewitbecausethecrisisdidinfacthappen.Thisisa
misuse of an important concept. In everyday language, we apply the word know only
whenwhatwasknownistrueandcanbeshowntobetrue.Wecanknowsomethingonly
ifitisbothtrueandknowable.Butthepeoplewhothoughttherewouldbeacrisis(and
therearefewerofthemthannowrememberthinkingit)couldnotconclusivelyshowitat
thetime.Manyintelligentandwell-informedpeoplewerekeenlyinterestedinthefuture
oftheeconomyanddidnotbelieveacatastrophewasimminent;Iinferfromthisfactthat
thecrisiswasnotknowable.Whatisperverseabouttheuseofknowinthiscontextisnot
that some individuals get credit for prescience that they do not deserve. It is that the
language implies that the world is more knowable than it is. It helps perpetuate a
perniciousillusion.
Thecoreoftheillusionisthatwebelieveweunderstandthepast,whichimpliesthat
thefuturealsoshouldbeknowable,butinfactweunderstandthepastlessthanwebelieve
wedo.Knowisnottheonlywordthatfostersthisillusion.Incommonusage,thewords
intuitionandpremonitionalsoarereservedforpastthoughtsthatturnedouttobetrue.The
statement“Ihadapremonitionthatthemarriagewouldnotlast,butIwaswrong”sounds
odd,asdoesanysentenceaboutanintuitionthatturnedouttobefalse.Tothinkclearly
aboutthefuture,weneedtocleanupthelanguagethatweuseinlabelingthebeliefswe
hadinthepast.
TheSocialCostsofHindsight
The mind that makes up narratives about the past is a sense-making organ. When an
unpredictedeventoccurs,weimmediatelyadjustourviewoftheworldtoaccommodate
the surprise. Imagine yourself before a football game between two teams that have the
samerecordofwinsandlosses.Nowthegameisover,andoneteamtrashedtheother.In
yourrevisedmodeloftheworld,thewinningteamismuchstrongerthantheloser,and
yourviewofthepastaswellasofthefuturehasbeenalteredbefрythatnewperception.
Learning from surprises is a reasonable thing to do, but it can have some dangerous
consequences.
A general limitation of the human mind is its imperfect ability to reconstruct past
states of knowledge, or beliefs that have changed. Once you adopt a new view of the
world(orofanypartofit),youimmediatelylosemuchofyourabilitytorecallwhatyou
usedtobelievebeforeyourmindchanged.
Many psychologists have studied what happens when people change their minds.
Choosingatopiconwhichmindsarenotcompletelymadeup—say,thedeathpenalty—
theexperimentercarefullymeasurespeople’sattitudes.Next,theparticipantsseeorheara
persuasiveproorconmessage.Thentheexperimentermeasurespeople’sattitudesagain;
they usually are closer to the persuasive message they were exposed to. Finally, the
participantsreporttheopiniontheyheldbeforehand.Thistaskturnsouttobesurprisingly
difficult. Asked to reconstruct their former beliefs, people retrieve their current ones
instead—an instance of substitution—and many cannot believe that they ever felt
differently.
Yourinabilitytoreconstruct pastbeliefswill inevitably causeyouto underestimate
the extent to which you were surprised by past events. Baruch Fischh off first
demonstratedthis“I-knew-it-all-along”effect,orhindsightbias,whenhewasastudentin
Jerusalem. Together with Ruth Beyth (another of our students), Fischh off conducted a
surveybeforePresidentRichardNixonvisitedChinaandRussiain1972.Therespondents
assigned probabilities to fifteen possible outcomes of Nixon’s diplomatic initiatives.
WouldMaoZedongagreetomeetwithNixon?MighttheUnitedStatesgrantdiplomatic
recognition to China? After decades of enmity, could the United States and the Soviet
Unionagreeonanythingsignificant?
AfterNixon’sreturnfromhistravels,FischhoffandBeythaskedthesamepeopleto
recall the probability that they had originally assigned to each of the fifteen possible
outcomes.Theresultswereclear.Ifaneventhadactuallyoccurred,peopleexaggerated
theprobabilitythattheyhadassignedtoitearlier.Ifthepossibleeventhadnotcometo
pass, the participants erroneously recalled that they had always considered it unlikely.
Furtherexperimentsshowedthatpeopleweredriventooverstatetheaccuracynotonlyof
theiroriginalpredictionsbutalsoofthosemadebyothers.Similarresultshavebeenfound
forothereventsthatgrippedpublicattention,suchastheO.J.Simpsonmurdertrialand
the impeachment of President Bill Clinton. The tendency to revise the history of one’s
beliefsinlightofwhatactuallyhappenedproducesarobustcognitiveillusion.
Hindsightbiashasperniciouseffectsontheevaluationsofdecisionmakers.Itleads
observerstoassessthequalityofadecisionnotbywhethertheprocesswassoundbutby
whetheritsoutcomewasgoodorbad.Consideralow-risksurgicalinterventioninwhich
anunpredictableaccidentoccurredthatcausedthepatient’sdeath.Thejurywillbeprone
to believe, after the fact, that the operation was actually risky and that the doctor who
ordered it should have known better. This outcome bias makes it almost impossible to
evaluate a decision properly—in terms of the beliefs that were reasonable when the
decisionwasmade.
Hindsight is especially unkind to decision makers who act as agents for others—
physicians, financial advisers, third-base coaches, CEOs, social workers, diplomats,
politicians. We are prone to blame decision makers for good decisions that worked out
badlyandtogivethemtoolittlecreditforsuccessfulmovesecaрthatappearobviousonly
afterthefact.Thereisaclearoutcomebias.Whentheoutcomesarebad,theclientsoften
blame their agents for not seeing the handwriting on the wall—forgetting that it was
writtenininvisibleinkthatbecamelegibleonlyafterward.Actionsthatseemedprudentin
foresight can look irresponsibly negligent in hindsight. Based on an actual legal case,
students in California were asked whether the city of Duluth, Minnesota, should have
shoulderedtheconsiderablecostofhiringafull-timebridgemonitortoprotectagainstthe
riskthatdebrismightgetcaughtandblockthefreeflowofwater.Onegroupwasshown
onlytheevidenceavailableatthetimeofthecity’sdecision;24%ofthesepeoplefeltthat
Duluth should take on the expense of hiring a flood monitor. The second group was
informed that debris had blocked the river, causing major flood damage; 56% of these
people said the city should have hired the monitor, although they had been explicitly
instructednottolethindsightdistorttheirjudgment.
The worse the consequence, the greater the hindsight bias. In the case of a
catastrophe,suchas9/11,weareespeciallyreadytobelievethattheofficialswhofailedto
anticipateitwerenegligentorblind.OnJuly10,2001,theCentralIntelligenceAgency
obtainedinformationthatal-QaedamightbeplanningamajorattackagainsttheUnited
States.GeorgeTenet,directoroftheCIA,broughttheinformationnottoPresidentGeorge
W. Bush but to National Security Adviser Condoleezza Rice. When the facts later
emerged,BenBradlee,thelegendaryexecutiveeditorofTheWashingtonPost,declared,
“Itseemstomeelementarythatifyou’vegotthestorythat’sgoingtodominatehistory
youmightaswellgorighttothepresident.”ButonJuly10,nooneknew—orcouldhave
known—thatthistidbitofintelligencewouldturnouttodominatehistory.
Because adherence to standard operating procedures is difficult to second-guess,
decisionmakerswhoexpecttohavetheirdecisionsscrutinizedwithhindsightaredriven
to bureaucratic solutions—and to an extreme reluctance to take risks. As malpractice
litigationbecamemorecommon,physicianschangedtheirproceduresinmultipleways:
ordered more tests, referred more cases to specialists, applied conventional treatments
evenwhentheywereunlikelytohelp.Theseactionsprotectedthephysiciansmorethan
they benefited the patients, creating the potential for conflicts of interest. Increased
accountabilityisamixedblessing.
Although hindsight and the outcome bias generally foster risk aversion, they also
bring undeserved rewards to irresponsible risk seekers, such as a general or an
entrepreneurwhotookacrazygambleandwon.Leaderswhohavebeenluckyarenever
punishedforhavingtakentoomuchrisk.Instead,theyarebelievedtohavehadtheflair
andforesighttoanticipatesuccess,andthesensiblepeoplewhodoubtedthemareseenin
hindsightasmediocre,timid,andweak.Afewluckygamblescancrownarecklessleader
withahaloofprescienceandboldness.
RecipesforSuccess
Thesense-makingmachineryofSystem1makesusseetheworldasmoretidy,simple,
predictable,andcoherentthan itreallyis.The illusionthatonehas understoodthepast
feedsthefurtherillusionthatonecanpredictandcontrolthefuture.Theseillusionsare
comforting.Theyreducetheanxietythatwewouldexperienceifweallowedourselvesto
fully acknowledge the uncertainties of existence. We all have a need for the reassuring
messagethatactionshaveappropriateconsequences,andthatsuccesswillrewardwisdom
andcourage.Manybdecрusinessbooksaretailor-madetosatisfythisneed.
Doleadersandmanagementpracticesinfluencetheoutcomesoffirmsinthemarket?
Of course they do, and the effects have been confirmed by systematic research that
objectivelyassessedthecharacteristicsofCEOsandtheirdecisions,andrelatedthemto
subsequent outcomes of the firm. In one study, the CEOs were characterized by the
strategy of the companies they had led before their current appointment, as well as by
management rules and procedures adopted after their appointment. CEOs do influence
performance, but the effects are much smaller than a reading of the business press
suggests.
Researchersmeasurethestrengthofrelationshipsbyacorrelationcoefficient,which
variesbetween0and1.Thecoefficientwasdefinedearlier(inrelationtoregressiontothe
mean) by the extent to which two measures are determined by shared factors. A very
generousestimateofthecorrelationbetweenthesuccessofthefirmandthequalityofits
CEOmightbeashighas.30,indicating30%overlap.Toappreciatethesignificanceof
thisnumber,considerthefollowingquestion:
Supposeyouconsidermanypairsoffirms.Thetwofirmsineachpairaregenerally
similar,buttheCEOofoneofthemisbetterthantheother.Howoftenwillyoufind
thatthefirmwiththestrongerCEOisthemoresuccessfulofthetwo?
In a well-ordered and predictable world, the correlation would be perfect (1), and the
strongerCEOwouldbefoundtoleadthemoresuccessfulfirmin100%ofthepairs.Ifthe
relativesuccessofsimilarfirmswasdeterminedentirelybyfactorsthattheCEOdoesnot
control(callthemluck,ifyouwish),youwouldfindthemoresuccessfulfirmledbythe
weaker CEO 50% of the time. A correlation of .30 implies that you would find the
strongerCEOleadingthestrongerfirminabout60%ofthepairs—animprovementofa
mere 10 percentage points over random guessing, hardly grist for the hero worship of
CEOswesooftenwitness.
Ifyouexpectedthisvaluetobehigher—andmostofusdo—thenyoushouldtakethat
asanindicationthatyouarepronetooverestimatethepredictabilityoftheworldyoulive
in.Makenomistake:improvingtheoddsofsuccessfrom1:1to3:2isaverysignificant
advantage,bothattheracetrackandinbusiness.Fromtheperspectiveofmostbusiness
writers, however, a CEO who has so little control over performance would not be
particularlyimpressiveevenifherfirmdidwell.Itisdifficulttoimaginepeopleliningup
atairportbookstorestobuyabookthatenthusiasticallydescribesthepracticesofbusiness
leaderswho,onaverage,dosomewhatbetterthanchance.Consumershaveahungerfora
clear message about the determinants of success and failure in business, and they need
storiesthatofferasenseofunderstanding,howeverillusory.
In his penetrating book The Halo Effect, Philip Rosenzweig, a business school
professorbasedinSwitzerland,showshowthedemandforillusorycertaintyismetintwo
populargenresofbusinesswriting:historiesoftherise(usually)andfall(occasionally)of
particularindividualsandcompanies,andanalysesofdifferencesbetweensuccessfuland
less successful firms. He concludes that stories of success and failure consistently
exaggerate the impact of leadership style and management practices on firm outcomes,
andthustheirmessageisrarelyuseful.
Toappreciatewhatisgoingon,imaginethatbusinessexperts,suchasotherCEOs,
areaskedtocommentonthereputationofthechiefexecutiveofacompany.Theypoрare
keenlyawareof whether thecompanyhas recently beenthrivingor failing. Aswesaw
earlierinthecaseofGoogle,thisknowledgegeneratesahalo.TheCEOofasuccessful
companyislikelytobecalledflexible,methodical,anddecisive.Imaginethatayearhas
passedandthingshavegonesour.Thesameexecutiveisnowdescribedasconfused,rigid,
andauthoritarian.Bothdescriptionssoundrightatthetime:itseemsalmostabsurdtocall
asuccessfulleaderrigidandconfused,orastrugglingleaderflexibleandmethodical.
Indeed, the halo effect is so powerful that you probably find yourself resisting the
idea that the same person and the same behaviors appear methodical when things are
goingwellandrigidwhenthingsaregoingpoorly.Becauseofthehaloeffect,wegetthe
causalrelationshipbackward:wearepronetobelievethatthefirmfailsbecauseitsCEO
isrigid,whenthetruthisthattheCEOappearstoberigidbecausethefirmisfailing.This
ishowillusionsofunderstandingareborn.
The halo effect and outcome bias combine to explain the extraordinary appeal of
books that seek to draw operational morals from systematic examination of successful
businesses. One of the best-known examples of this genre is Jim Collins and Jerry I.
Porras’s Built to Last. The book contains a thorough analysis of eighteen pairs of
competingcompanies,inwhichonewasmoresuccessfulthantheother.Thedataforthese
comparisonsareratingsofvariousaspectsofcorporateculture,strategy,andmanagement
practices. “We believe every CEO, manager, and entrepreneur in the world should read
thisbook,”theauthorsproclaim.“Youcanbuildavisionarycompany.”
ThebasicmessageofBuilttoLastandothersimilarbooksisthatgoodmanagerial
practicescanbeidentifiedandthatgoodpracticeswillberewardedbygoodresults.Both
messagesareoverstated.Thecomparisonoffirmsthathavebeenmoreorlesssuccessful
istoasignificantextentacomparisonbetweenfirmsthathavebeenmoreorlesslucky.
Knowing the importance of luck, you should be particularly suspicious when highly
consistentpatternsemergefromthecomparisonofsuccessfulandlesssuccessfulfirms.In
thepresenceofrandomness,regularpatternscanonlybemirages.
Becauseluckplaysalargerole,thequalityofleadershipandmanagementpractices
cannot be inferred reliably from observations of success. And even if you had perfect
foreknowledge that a CEO has brilliant vision and extraordinary competence, you still
wouldbeunabletopredicthowthecompanywillperformwithmuchbetteraccuracythan
theflipofacoin.Onaverage,thegapincorporateprofitabilityandstockreturnsbetween
theoutstandingfirmsandthelesssuccessfulfirmsstudiedinBuilttoLastshranktoalmost
nothing in the period following the study. The average profitability of the companies
identifiedinthefamousIn Search of Excellencedroppedsharplyas wellwithinashort
time. A study of Fortunes “Most Admired Companies” finds that over a twenty-year
period,thefirmswiththeworstratingswentontoearnmuchhigherstockreturnsthanthe
mostadmiredfirms.
You are probably tempted to think of causal explanations for these observations:
perhaps the successful firms became complacent, the less successful firms tried harder.
Butthisisthewrongwaytothinkaboutwhathappened.Theaveragegapmustshrink,
because the original gap was due in good part to luck, which contributed both to the
success of the top firms and to the lagging performance of the rest. We have already
encounteredthisstatisticalfactoflife:regressiontothemean.
Storiesofhowbusinessesriseandfallstrikeachordwithreadersbyofferingwhatthe
humanmindneeds:asimplemessageoftriumphandfailurethatidentifiesclearcauses
and ignores the determinative power of luck and the inevitability of regression. These
stories induce and maintain an illusion of understanding, imparting lessons of little
enduringvaluetoreaderswhoarealltooeagertobelievethem.
SpeakingofHindsight
“Themistakeappearsobvious,butitisjusthindsight.Youcouldnothaveknownin
advance.”
“He’slearningtoomuchfromthissuccessstory,whichistootidy.Hehasfallenfora
narrativefallacy.”
“Shehasnoevidenceforsayingthatthefirmisbadlymanaged.Allsheknowsisthat
itsstockhasgonedown.Thisisanoutcomebias,parthindsightandparthaloeffect.”
“Let’snotfallfortheoutcomebias.Thiswasastupiddecisioneventhoughitworked
outwell.”
P
TheIllusionofValidity
System1isdesignedtojumptoconclusionsfromlittleevidence—anditisnotdesignedto
know the size of its jumps. Because of WYSIATI, only the evidence at hand counts.
Becauseofconfidencebycoherence,thesubjectiveconfidencewehaveinouropinions
reflects the coherence of the story that System 1 and System 2 have constructed. The
amount of evidence and its quality do not count for much, because poor evidence can
makeaverygoodstory.Forsomeofourmostimportantbeliefswehavenoevidenceat
all, except that people we love and trust hold these beliefs. Considering how little we
know,theconfidencewehaveinourbeliefsispreposterous—anditisalsoessential.
TheIllusionofValidity
ManydecadesagoIspentwhatseemedlikeagreatdealoftimeunderascorchingsun,
watching groups of sweaty soldiers as they solved a problem. I was doing my national
service in the Israeli Army at the time. I had completed an undergraduate degree in
psychology,andafterayearasaninfantryofficerwasassignedtothearmy’sPsychology
Branch, where one of my occasional duties was to help evaluate candidates for officer
training.WeusedmethodsthathadbeendevelopedbytheBritishArmyinWorldWarII.
Onetest,calledthe“leaderlessgroupchallenge,”wasconductedonanobstaclefield.
Eight candidates, strangers to each other, with all insignia of rank removed and only
numberedtagstoidentifythem,wereinstructedtoliftalonglogfromthegroundandhaul
ittoawallaboutsixfeethigh.Theentiregrouphadtogettotheothersideofthewall
withoutthelogtouchingeitherthegroundorthewall,andwithoutanyonetouchingthe
wall.Ifanyofthesethingshappened,theyhadtodeclareitsigрЉTandstartagain.
Therewasmorethanonewaytosolvetheproblem.Acommonsolutionwasforthe
teamtosendseveralmentotheothersidebycrawlingoverthepoleasitwasheldatan
angle, like a giant fishing rod, by other members of the group. Or else some soldiers
wouldclimbontosomeone’sshouldersandjumpacross.Thelastmanwouldthenhaveto
jumpupatthepole,heldupatananglebytherestofthegroup,shinnyhiswayalongits
lengthastheotherskepthimandthepolesuspendedintheair,andleapsafelytotheother
side.Failurewascommonatthispoint,whichrequiredthemtostartalloveragain.
AsacolleagueandImonitoredtheexercise,wemadenoteofwhotookcharge,who
tried to lead but was rebuffed, how cooperative each soldier was in contributing to the
group effort. We saw who seemed to be stubborn, submissive, arrogant, patient, hot-
tempered, persistent, or a quitter. We sometimes saw competitive spite when someone
whose idea had been rejected by the group no longer worked very hard. And we saw
reactionstocrisis:whoberatedacomradewhosemistakehadcausedthewholegroupto
fail,whosteppedforwardtoleadwhentheexhaustedteamhadtostartover.Underthe
stressoftheevent,wefelt,eachman’struenaturerevealeditself.Ourimpressionofeach
candidate’scharacterwasasdirectandcompellingasthecolorofthesky.
After watching the candidates make several attempts, we had to summarize our
impressionsofsoldiers’ leadershipabilitiesand determine, withanumerical score,who
should be eligible for officer training. We spent some time discussing each case and
reviewingourimpressions.Thetaskwasnotdifficult,becausewefeltwehadalreadyseen
eachsoldiers leadershipskills. Some ofthe men hadlooked like strongleaders, others
hadseemedlikewimpsorarrogantfools,othersmediocrebutnothopeless.Quiteafew
lookedsoweakthatweruledthemoutascandidatesforofficerrank.Whenourmultiple
observations of each candidate converged on a coherent story, we were completely
confidentinourevaluationsandfeltthatwhatwehadseenpointeddirectlytothefuture.
Thesoldierwhotookoverwhenthegroupwasintroubleandledtheteamoverthewall
wasaleaderatthatmoment.Theobviousbestguessabouthowhewoulddointraining,or
incombat,wasthathewouldbeaseffectivethenashehadbeenatthewall.Anyother
predictionseemedinconsistentwiththeevidencebeforeoureyes.
Because our impressions of how well each soldier had performed were generally
coherent and clear, our formal predictions were just as definite. A single score usually
came to mind and we rarely experienced doubts or formed conflicting impressions. We
werequitewillingtodeclare,“Thisonewillnevermakeit,”“Thatfellowismediocre,but
he should do okay,” or “He will be a star.” We felt no need to question our forecasts,
moderatethem,orequivocate.Ifchallenged,however,wewerepreparedtoadmit,“Butof
courseanythingcouldhappen.”Wewerewillingtomakethatadmissionbecause,despite
our definite impressions about individual candidates, we knew with certainty that our
forecastswerelargelyuseless.
Theevidencethatwecouldnotforecastsuccessaccuratelywasoverwhelming.Every
fewmonthswehadafeedbacksessioninwhichwelearnedhowthecadetsweredoingat
the officer-training school and could compare our assessments against the opinions of
commanders who had been monitoring them for some time. The story was always the
same:ourabilitytopredictperformanceattheschoolwasnegligible.Ourforecastswere
betterthanblindguesses,butnotbymuch.
We weedredowncastfora while after receivingthediscouragingnews.But this
wasthearmy.Usefulornot,therewasaroutinetobefollowedandorderstobeobeyed.
Anotherbatchofcandidatesarrivedthenextday.Wetookthemtotheobstaclefield,we
facedthemwiththewall,theyliftedthelog,andwithinafewminuteswesawtheirtrue
naturesrevealed,asclearlyasbefore.Thedismaltruthaboutthequalityofourpredictions
had no effect whatsoever on how we evaluated candidates and very little effect on the
confidencewefeltinourjudgmentsandpredictionsaboutindividuals.
Whathappenedwasremarkable.Theglobalevidenceofourpreviousfailureshould
haveshakenourconfidenceinourjudgmentsofthecandidates,butitdidnot.Itshould
alsohavecausedustomoderateourpredictions,butitdidnot.Weknewasageneralfact
thatourpredictionswerelittlebetterthanrandomguesses,butwecontinuedtofeeland
act as if each of our specific predictions was valid. I was reminded of the Müller-Lyer
illusion, in which we know the lines are of equal length yet still see them as being
different. I was so struck by the analogy that I coined a term for our experience: the
illusionofvalidity.
Ihaddiscoveredmyfirstcognitiveillusion.
Decadeslater,Icanseemanyofthecentralthemesofmythinking—andofthisbook—in
thatoldstory.Ourexpectationsforthesoldiers’futureperformancewereaclearinstance
ofsubstitution,andoftherepresentativenessheuristicinparticular.Havingobservedone
hourofasoldiersbehaviorinanartificialsituation,wefeltweknewhowwellhewould
facethechallengesofofficertrainingandofleadershipincombat.Ourpredictionswere
completelynonregressive—wehadnoreservationsaboutpredictingfailureoroutstanding
successfromweakevidence.ThiswasaclearinstanceofWYSIATI.Wehadcompelling
impressionsofthebehaviorweobservedandnogoodwaytorepresentourignoranceof
thefactorsthatwouldeventuallydeterminehowwellthecandidatewouldperformasan
officer.
Lookingback,themoststrikingpartofthestoryisthatourknowledgeofthegeneral
rule—thatwecouldnotpredict—hadnoeffectonourconfidenceinindividualcases.Ican
seenowthatourreactionwassimilartothatofNisbettandBorgida’sstudentswhenthey
were told that most people did not help a stranger suffering a seizure. They certainly
believedthestatisticstheywereshown,butthebaseratesdidnotinfluencetheirjudgment
ofwhetheranindividualtheysawonthevideowouldorwouldnothelpastranger.Justas
Nisbett and Borgida showed, people are often reluctant to infer the particular from the
general.
Subjectiveconfidencein ajudgmentisnotareasonedevaluationoftheprobability
thatthisjudgmentiscorrect.Confidenceisafeeling,whichreflectsthecoherenceofthe
information and the cognitive ease of processing it. It is wise to take admissions of
uncertainty seriously, but declarations of high confidence mainly tell you that an
individualhas constructedacoherentstoryinhismind,notnecessarilythatthestoryis
true.
TheIllusionofStock-PickingSkill
In1984,AmosandIandourfriendRichardThalervisitedaWallStreetfirm.Ourhost,a
senior investment manager, had invited us to discuss the role of judgment biases in
investing.IknewsolittleaboutfinancethatIdidnotevenknowwhattoaskhim,butI
remember one exchange. “When you sell a stock,” d nI asked, “who buys it?” He
answeredwithawaveinthevaguedirectionofthewindow,indicatingthatheexpected
thebuyertobesomeoneelseverymuchlikehim.Thatwasodd:Whatmadeoneperson
buyandtheothersell?Whatdidthesellersthinktheyknewthatthebuyersdidnot?
Sincethen,myquestionsaboutthestockmarkethavehardenedintoalargerpuzzle:a
major industry appears to be built largely on an illusion ofskill. Billions of shares are
tradedeveryday,withmanypeoplebuyingeachstockandotherssellingittothem.Itis
notunusualformorethan100millionsharesofasinglestocktochangehandsinoneday.
Mostofthebuyersandsellersknowthattheyhavethesameinformation;theyexchange
thestocksprimarilybecausetheyhavedifferentopinions.Thebuyersthinkthepriceistoo
low and likely to rise, while the sellers think the price is high and likely to drop. The
puzzleiswhybuyersandsellersalikethinkthatthecurrentpriceiswrong.Whatmakes
thembelievetheyknowmoreaboutwhatthepriceshouldbethanthemarketdoes?For
mostofthem,thatbeliefisanillusion.
Initsbroadoutlines,thestandardtheoryofhowthestockmarketworksisaccepted
by all the participants in the industry. Everybody in the investment business has read
Burton Malkiel’s wonderful book A Random Walk Down Wall Street. Malkiel’s central
ideaisthatastock’spriceincorporatesalltheavailableknowledgeaboutthevalueofthe
companyandthebestpredictionsaboutthefutureofthestock.Ifsomepeoplebelievethat
thepriceofastockwillbehighertomorrow,theywillbuymoreofittoday.This,inturn,
willcauseitspricetorise.Ifallassetsinamarketarecorrectlypriced,noonecanexpect
eithertogainortolosebytrading.Perfectpricesleavenoscopeforcleverness,butthey
alsoprotectfoolsfromtheirownfolly.Wenowknow,however,thatthetheoryisnotquite
right.Manyindividualinvestorsloseconsistentlybytrading,anachievementthatadart-
throwingchimpcouldnotmatch.Thefirstdemonstrationofthisstartlingconclusionwas
collectedbyTerryOdean,afinanceprofessoratUCBerkeleywhowasoncemystudent.
Odean began by studying the trading records of 10,000 brokerage accounts of
individual investors spanning a seven-year period. He was able to analyze every
transactiontheinvestorsexecutedthroughthatfirm,nearly163,000trades.Thisrichsetof
dataallowedOdeantoidentifyallinstancesinwhichaninvestorsoldsomeofhisholdings
in one stock and soon afterward bought another stock. By these actions the investor
revealedthathe(mostoftheinvestorsweremen)hadadefiniteideaaboutthefutureof
thetwostocks:heexpectedthestockthathechosetobuytodobetterthanthestockhe
chosetosell.
Todeterminewhetherthoseideaswerewellfounded,Odeancomparedthereturnsof
thestocktheinvestorhadsoldandthestockhehadboughtinitsplace,overthecourseof
oneyearafterthetransaction.Theresultswereunequivocallybad.Onaverage,theshares
thatindividualtraderssolddidbetterthanthosetheybought,byaverysubstantialmargin:
3.2 percentage points per year, above and beyond the significant costs of executing the
twotrades.
Itisimportanttorememberthatthisisastatementaboutaverages:someindividuals
didmuchbetter,othersdidmuchworse.However,itisclearthatforthelargemajorityof
individualinvestors,takingashoweranddoingnothingwouldhavebeenabetterpolicy
thanimplementingtheideas that cametotheir minds. Laterresearchby Odean andhis
colleagueBradBarbersupportedthisconclusion.Inapapertitled“TradingIsHazardous
toYourt-tWealth,”theyshowedthat,onaverage,themostactivetradershadthepoorest
results, while the investors who traded the least earned the highest returns. In another
paper, titled “Boys Will Be Boys,” they showed that men acted on their useless ideas
significantly more often than women, and that as a result women achieved better
investmentresultsthanmen.
Ofcourse,thereisalwayssomeoneontheothersideofeachtransaction;ingeneral,
thesearefinancialinstitutionsandprofessionalinvestors,whoarereadytotakeadvantage
ofthemistakesthatindividualtradersmakeinchoosingastocktosellandanotherstock
tobuy.FurtherresearchbyBarberandOdeanhasshedlightonthesemistakes.Individual
investorsliketolockintheirgainsbyselling“winners,”stocksthathaveappreciatedsince
they were purchased, and they hang on to their losers. Unfortunately for them, recent
winnerstendtodobetterthanrecentlosersintheshortrun,soindividualssellthewrong
stocks. They also buy the wrong stocks. Individual investors predictably flock to
companiesthatdrawtheirattentionbecausetheyareinthenews.Professionalinvestors
aremoreselectiveinrespondingtonews.Thesefindingsprovidesomejustificationforthe
labelof“smartmoney”thatfinanceprofessionalsapplytothemselves.
Although professionals are able to extract a considerable amount of wealth from
amateurs,fewstockpickers,ifany,havetheskillneededtobeatthemarketconsistently,
yearafteryear.Professionalinvestors,includingfundmanagers,failabasictestofskill:
persistentachievement.Thediagnosticfortheexistenceofanyskillistheconsistencyof
individualdifferencesinachievement.Thelogicissimple:ifindividualdifferencesinany
oneyeararedueentirelytoluck,therankingofinvestorsandfundswillvaryerratically
andtheyear-to-yearcorrelationwillbezero.Wherethereisskill,however,therankings
willbemorestable.Thepersistenceofindividualdifferencesisthemeasurebywhichwe
confirmtheexistenceofskillamonggolfers,carsalespeople,orthodontists,orspeedytoll
collectorsontheturnpike.
Mutualfundsarerunbyhighlyexperiencedandhardworkingprofessionalswhobuy
and sell stocks to achieve the best possible results for their clients. Nevertheless, the
evidencefrommorethanfiftyyearsofresearchisconclusive:foralargemajorityoffund
managers, the selection of stocks is more like rolling dice than like playing poker.
Typicallyatleasttwooutofeverythreemutualfundsunderperformtheoverallmarketin
anygivenyear.
Moreimportant,theyear-to-yearcorrelationbetweentheoutcomesofmutualfundsis
very small, barely higher than zero. The successful funds in any given year are mostly
lucky;they haveagoodrollofthedice.Thereisgeneralagreementamongresearchers
that nearly all stock pickers, whether they know it or not—and few of them do—are
playinga gameof chance. Thesubjective experienceof traders isthat theyare making
sensibleeducatedguessesinasituationofgreatuncertainty.Inhighlyefficientmarkets,
however,educatedguessesarenomoreaccuratethanblindguesses.
SomeyearsagoIhadanunusualopportunitytoexaminetheillusionoffinancialskillup
close.Ihadbeeninvitedtospeaktoagroupofinvestmentadvisersinafirmthatprovided
financial advice and other services to very wealthy clients. I asked for some data to
preparemypresentationandwasgrantedasmalltreasure:aspreadsheetsummarizingthe
investmentoutcomesofsometwenty-fiveanonymouswealthadvisers,foreachofeight
consecutive years. Each advisers scoof re for each year was his (most of them were
men)maindeterminantofhisyear-endbonus.Itwasasimplemattertoranktheadvisers
by their performance in each year and to determine whether there were persistent
differences in skill among them and whether the same advisers consistently achieved
betterreturnsfortheirclientsyearafteryear.
Toanswerthequestion,Icomputedcorrelationcoefficientsbetweentherankingsin
eachpairofyears:year1withyear2,year1withyear3,andsoonupthroughyear7with
year 8. That yielded 28 correlation coefficients, one for each pair of years. I knew the
theory and was prepared to find weak evidence of persistence of skill. Still, I was
surprisedtofindthattheaverageofthe28correlationswas.01.Inotherwords,zero.The
consistentcorrelationsthatwouldindicatedifferencesinskillwerenottobefound.The
resultsresembledwhatyouwouldexpectfromadice-rollingcontest,notagameofskill.
Nooneinthefirmseemedtobeawareofthenatureofthegamethatitsstockpickers
were playing. The advisers themselves felt they were competent professionals doing a
seriousjob,andtheirsuperiorsagreed.Ontheeveningbeforetheseminar,RichardThaler
andIhaddinnerwithsomeofthetopexecutivesofthefirm,thepeoplewhodecideonthe
sizeofbonuses. We askedthemtoguess theyear-to-yearcorrelationin the rankingsof
individual advisers. They thought they knew what was coming and smiled as they said
“notveryhigh”or“performancecertainlyfluctuates.”Itquicklybecameclear,however,
thatnooneexpectedtheaveragecorrelationtobezero.
Ourmessagetotheexecutiveswasthat,atleastwhenitcametobuildingportfolios,
thefirmwasrewardingluckasifitwereskill.Thisshouldhavebeenshockingnewsto
them,butitwasnot.Therewasnosignthattheydisbelievedus.Howcouldthey?After
all, we had analyzed their own results, and they were sophisticated enough to see the
implications,whichwepolitelyrefrainedfromspellingout.Weallwentoncalmlywith
ourdinner,andIhavenodoubtthatbothourfindingsandtheirimplicationswerequickly
sweptundertherugandthatlifeinthefirmwentonjustasbefore.Theillusionofskillis
notonlyanindividualaberration;itisdeeplyingrainedinthecultureoftheindustry.Facts
thatchallengesuchbasicassumptions—andtherebythreatenpeople’slivelihoodandself-
esteem—aresimplynotabsorbed.Theminddoesnotdigestthem.Thisisparticularlytrue
of statistical studies of performance, which provide base-rate information that people
generallyignorewhenitclasheswiththeirpersonalimpressionsfromexperience.
Thenextmorning,we reported the findingstotheadvisers,andtheirresponsewas
equallybland.Theirownexperienceofexercisingcarefuljudgmentoncomplexproblems
wasfarmorecompellingtothemthananobscurestatisticalfact.Whenweweredone,one
oftheexecutivesIhaddinedwiththepreviouseveningdrovemetotheairport.Hetold
me,withatraceofdefensiveness,“Ihavedoneverywellforthefirmandnoonecantake
thatawayfromme.”Ismiledandsaidnothing.ButIthought,“Well,Itookitawayfrom
you this morning. If your success was due mostly to chance, how much credit are you
entitledtotakeforit?”
WhatSupportstheIllusionsofSkillandValidity?
Cognitiveillusionscanbemorestubbornthanvisualillusions.Whatyoulearnedaboutthe
Müller-Lyer illusion did not change the way you see the lines, but it changed your
behavior.Younowknowthatyoucannottrustyourimpressionofthelengllithoflines
that have fins appended to them, and you also know that in the standard Müller-Lyer
displayyoucannottrustwhatyousee.Whenaskedaboutthelengthofthelines,youwill
reportyourinformedbelief,nottheillusionthatyoucontinuetosee.Incontrast,whenmy
colleaguesandIinthearmylearnedthatourleadershipassessmenttestshadlowvalidity,
we accepted that fact intellectually, but it had no impact on either our feelings or our
subsequent actions. The response we encountered in the financial firm was even more
extreme. I am convinced that the message that Thaler and I delivered to both the
executivesandtheportfoliomanagerswasinstantlyputawayinadarkcornerofmemory
whereitwouldcausenodamage.
Whydoinvestors,bothamateurandprofessional,stubbornlybelievethattheycando
better than the market, contrary to an economic theory that most of them accept, and
contrary to what they could learn from a dispassionate evaluation of their personal
experience?Manyofthethemesofpreviouschapterscomeupagainintheexplanationof
theprevalenceandpersistenceofanillusionofskillinthefinancialworld.
Themostpotentpsychologicalcauseoftheillusioniscertainlythatthepeoplewho
pick stocks are exercising high-level skills. They consult economic data and forecasts,
they examine income statements and balance sheets, they evaluate the quality of top
management, and they assess the competition. All this is serious work that requires
extensivetraining,andthepeoplewhodoithavetheimmediate(andvalid)experienceof
usingtheseskills.Unfortunately,skillinevaluatingthebusinessprospectsofafirmisnot
sufficientforsuccessfulstocktrading,wherethekeyquestioniswhethertheinformation
aboutthefirmisalreadyincorporatedinthepriceofitsstock.Tradersapparentlylackthe
skilltoanswerthiscrucialquestion,buttheyappeartobeignorantoftheirignorance.AsI
had discovered from watching cadets on the obstacle field, subjective confidence of
tradersisafeeling,notajudgment.Ourunderstandingofcognitiveeaseandassociative
coherencelocatessubjectiveconfidencefirmlyinSystem1.
Finally, the illusions of validity and skill are supported by a powerful professional
culture. We know that people can maintain an unshakable faith in any proposition,
howeverabsurd,whentheyaresustainedbyacommunityoflike-mindedbelievers.Given
theprofessionalcultureofthefinancialcommunity,itisnotsurprisingthatlargenumbers
ofindividualsinthatworldbelievethemselvestobeamongthechosenfewwhocando
whattheybelieveotherscannot.
TheIllusionsofPundits
Theideathatthefutureisunpredictableisunderminedeverydaybytheeasewithwhich
thepastisexplained.AsNassimTalebpointedoutinTheBlackSwan,ourtendencyto
constructandbelievecoherentnarrativesofthepastmakesitdifficultforustoacceptthe
limitsofourforecastingability.Everythingmakessenseinhindsight,afactthatfinancial
punditsexploiteveryeveningastheyofferconvincingaccountsoftheday’sevents.And
wecannotsuppressthepowerfulintuitionthatwhatmakessenseinhindsighttodaywas
predictableyesterday.Theillusionthatweunderstandthepastfostersoverconfidencein
ourabilitytopredictthefuture.
Theoften-usedimageofthe“marchofhistory”impliesorderanddirection.Marches,
unlikestrollsorwalks,arenotrandom.Wethinkthatweshouldbeabletoexplainthepast
byfocusingoneitherlargesocialmovementsandculturalandtechnologicaldevelopments
ortheintentionsandabilitiesofafewgcoreatmen.Theideathatlargehistoricalevents
aredeterminedbyluckisprofoundlyshocking,althoughitisdemonstrablytrue.Itishard
to think of the history of the twentieth century, including its large social movements,
withoutbringingintheroleofHitler,Stalin,andMaoZedong.Buttherewasamomentin
time,justbeforeaneggwasfertilized,whentherewasafifty-fiftychancethattheembryo
thatbecameHitlercouldhavebeenafemale.Compoundingthethreeevents,therewasa
probabilityofone-eighthofatwentiethcenturywithoutanyofthethreegreatvillainsand
itisimpossibletoarguethathistorywouldhavebeenroughlythesameintheirabsence.
Thefertilizationofthesethreeeggshadmomentousconsequences,anditmakesajokeof
theideathatlong-termdevelopmentsarepredictable.
Yettheillusionofvalidpredictionremainsintact,afactthatisexploitedbypeople
whose business is prediction—not only financial experts but pundits in business and
politics, too. Television and radio stations and newspapers have their panels of experts
whosejobitistocommentontherecentpastandforetellthefuture.Viewersandreaders
havetheimpressionthattheyarereceivinginformationthatissomehowprivileged,orat
least extremely insightful. And there is no doubt that the pundits and their promoters
genuinelybelievetheyareofferingsuchinformation.PhilipTetlock,apsychologistatthe
University of Pennsylvania, explained these so-called expert predictions in a landmark
twenty-yearstudy,whichhepublishedinhis2005bookExpertPoliticalJudgment:How
GoodIsIt?HowCanWeKnow?Tetlockhassetthetermsforanyfuturediscussionofthis
topic.
Tetlock interviewed 284 people who made their living “commenting or offering
adviceonpoliticalandeconomictrends.”Heaskedthemtoassesstheprobabilitiesthat
certaineventswouldoccurinthenottoodistantfuture,bothinareasoftheworldinwhich
theyspecializedandinregionsaboutwhichtheyhadlessknowledge.WouldGorbachev
be ousted in a coup? Would the United States go to war in the Persian Gulf? Which
countrywouldbecomethenextbigemergingmarket?Inall,Tetlockgatheredmorethan
80,000 predictions. He also asked the experts how they reached their conclusions, how
theyreactedwhenprovedwrong,andhowtheyevaluatedevidencethatdidnotsupport
their positions. Respondents were asked to rate the probabilities of three alternative
outcomes in every case: the persistence of the status quo, more of something such as
politicalfreedomoreconomicgrowth,orlessofthatthing.
Theresultsweredevastating.Theexpertsperformedworsethantheywouldhaveif
theyhadsimplyassigned equal probabilitiestoeachofthethreepotentialoutcomes.In
otherwords,peoplewhospendtheirtime,andearntheirliving,studyingaparticulartopic
producepoorerpredictionsthandart-throwingmonkeyswhowouldhavedistributedtheir
choices evenly over the options. Even in the region they knew best, experts were not
significantlybetterthannonspecialists.
Thosewho knowmore forecastvery slightlybetter thanthose who know less. But
thosewiththemostknowledgeareoftenlessreliable.Thereasonisthatthepersonwho
acquires more knowledge develops an enhanced illusion of her skill and becomes
unrealistically overconfident. “We reach the point of diminishing marginal predictive
returnsforknowledgedisconcertinglyquickly,”Tetlockwrites.“Inthisageofacademic
hyperspecialization, there is no reason for supposing that contributors to top journals—
distinguished political scientists, area study specialists, economists, and so on—are any
betterthanjournalistsorattentivereadersofTheNewYorkTimesin‘reading&#oul8217;
emerging situations.” The more famous the forecaster, Tetlock discovered, the more
flamboyanttheforecasts.“Expertsindemand,”hewrites,“weremoreoverconfidentthan
theircolleagueswhoekedoutexistencesfarfromthelimelight.”
Tetlockalsofoundthatexpertsresistedadmittingthattheyhadbeenwrong,andwhen
theywerecompelledtoadmiterror,theyhadalargecollectionofexcuses:theyhadbeen
wrongonlyintheirtiming,anunforeseeableeventhadintervened,ortheyhadbeenwrong
butfortherightreasons.Expertsarejusthumanintheend.Theyaredazzledbytheirown
brillianceandhatetobewrong.Expertsareledastraynotbywhattheybelieve,butby
how they think, says Tetlock. He uses the terminology from Isaiah Berlin’s essay on
Tolstoy, “The Hedgehog and the Fox.” Hedgehogs “know one big thing” and have a
theoryabouttheworld;theyaccountforparticulareventswithinacoherentframework,
bristlewithimpatiencetowardthosewhodon’tseethingstheirway,andareconfidentin
theirforecasts.Theyarealsoespeciallyreluctanttoadmiterror.Forhedgehogs,afailed
prediction is almost always “off only on timing” or “very nearly right.” They are
opinionatedandclear,whichisexactlywhattelevisionproducerslovetoseeonprograms.
Two hedgehogs on different sides of an issue, each attacking the idiotic ideas of the
adversary,makeforagoodshow.
Foxes,bycontrast,arecomplexthinkers.Theydon’tbelievethatonebigthingdrives
themarchofhistory(forexample,theyareunlikelytoaccepttheviewthatRonaldReagan
single-handedlyendedthecoldwarbystandingtallagainsttheSovietUnion).Insteadthe
foxes recognize that reality emerges from the interactions of many different agents and
forces,includingblindluck,oftenproducinglargeandunpredictableoutcomes.Itwasthe
foxeswhoscoredbestinTetlock’sstudy,althoughtheirperformancewasstillverypoor.
Theyarelesslikelythanhedgehogstobeinvitedtoparticipateintelevisiondebates.
ItisNottheExperts’Fault—TheWorldisDifficult
Themainpointofthischapterisnotthatpeoplewhoattempttopredictthefuturemake
many errors; that goes without saying. The first lesson is that errors of prediction are
inevitable because the world is unpredictable. The second is that high subjective
confidenceisnottobetrustedasanindicatorofaccuracy(lowconfidencecouldbemore
informative).
Short-termtrends canbe forecast,and behaviorand achievementscan be predicted
withfairaccuracyfrompreviousbehaviorsandachievements.Butweshouldnotexpect
performance in officer training and in combat to be predictable from behavior on an
obstacle field—behavior both on the test and in the real world is determined by many
factorsthatarespecifictotheparticularsituation.Removeonehighlyassertivemember
fromagroupofeightcandidatesandeveryoneelse’spersonalitieswillappeartochange.
Letasnipersbulletmovebyafewcentimetersandtheperformanceofanofficerwillbe
transformed.Idonotdenythevalidityofalltests—ifatestpredictsanimportantoutcome
withavalidityof.20or.30,thetestshouldbeused.Butyoushouldnotexpectmore.You
should expect little or nothing from Wall Street stock pickers who hope to be more
accurate than the market in predicting the future of prices. And you should not expect
much from pundits making long-term forecasts—although they may have valuable
insightsintothenearfuture.Thelinethatseparatesthepossiblypredictablefuturefrom
theunpredictabledistantfutureisinyettobedrawn.
SpeakingofIllusorySkill
“He knows that the record indicates that the development of this illness is mostly
unpredictable.Howcanhebesoconfidentinthis case? Soundslikeanillusionof
validity.”
“Shehasacoherentstorythatexplainsallsheknows,andthecoherencemakesher
feelgood.”
“Whatmakeshimbelievethatheissmarterthanthemarket?Isthisanillusionof
skill?”
“Sheisahedgehog.Shehasatheorythatexplainseverything,anditgivesherthe
illusionthatsheunderstandstheworld.”
“Thequestionisnotwhethertheseexpertsarewelltrained.Itiswhethertheirworld
ispredictable.”
P
Intuitionsvs.Formulas
Paul Meehl was a strange and wonderful character, and one of the most versatile
psychologistsofthetwentieth century.Among the departmentsinwhichhe hadfaculty
appointmentsattheUniversityofMinnesotawerepsychology,law,psychiatry,neurology,
and philosophy. He also wrote on religion, political science, and learning in rats. A
statistically sophisticated researcher and a fierce critic of empty claims in clinical
psychology,Meehlwasalsoapracticingpsychoanalyst.Hewrotethoughtfulessaysonthe
philosophicalfoundationsofpsychologicalresearchthatIalmostmemorizedwhileIwas
agraduatestudent.InevermetMeehl,buthewasoneofmyheroesfromthetimeIread
his Clinical vs. Statistical Prediction: A Theoretical Analysis and a Review of the
Evidence.
Intheslimvolumethathelatercalled“mydisturbinglittlebook,”Meehlreviewed
the results of 20 studies that had analyzed whether clinical predictions based on the
subjective impressions of trained professionals were more accurate than statistical
predictionsmadebycombiningafewscoresorratingsaccordingtoarule.Inatypical
study,trainedcounselorspredictedthegradesoffreshmenattheendoftheschoolyear.
Thecounselorsinterviewedeachstudentforforty-fiveminutes.Theyalsohadaccessto
high school grades, several aptitude tests, and a four-page personal statement. The
statisticalalgorithmusedonlyafractionofthisinformation:highschoolgradesandone
aptitudetest.Nevertheless,theformulawasmoreaccuratethan11ofthe14counselors.
Meehl reported generally similar results across a variety of other forecast outcomes,
includingviolationsofparole,successinpilottraining,andcriminalrecidivism.
Not surprisingly, Meehl’s book provoked shock and disbelief among clinical
psychologists,andthecontroversyitstartedhasengenderedastreamofresearchthatis
stillflowingtoday,more than fiftyyephyЉdiars afteritspublication.Thenumber of
studies reporting comparisons of clinical and statistical predictions has increased to
roughlytwohundred,butthescoreinthecontestbetweenalgorithmsandhumanshasnot
changed. About 60% of the studies have shown significantly better accuracy for the
algorithms.Theothercomparisonsscoredadrawinaccuracy,butatieistantamounttoa
winforthestatisticalrules,whicharenormallymuchlessexpensive to use thanexpert
judgment.Noexceptionhasbeenconvincinglydocumented.
Therangeofpredictedoutcomeshasexpandedtocovermedicalvariablessuchasthe
longevityofcancerpatients,thelengthofhospitalstays,thediagnosisofcardiacdisease,
andthesusceptibilityofbabiestosuddeninfantdeathsyndrome;economicmeasuressuch
astheprospectsofsuccessfornewbusinesses,theevaluationofcreditrisksbybanks,and
the future career satisfaction of workers; questions of interest to government agencies,
including assessments of the suitability of foster parents, the odds of recidivism among
juvenile offenders, and the likelihood of other forms of violent behavior; and
miscellaneousoutcomessuchastheevaluationofscientificpresentations,thewinnersof
footballgames,andthefuturepricesofBordeauxwine.Eachofthesedomainsentailsa
significantdegreeofuncertaintyandunpredictability.Wedescribethemas“low-validity
environments.” In every case, the accuracy of experts was matched or exceeded by a
simplealgorithm.
As Meehl pointed out with justified pride thirty years after the publication of his
book, “There is no controversy in social science which shows such a large body of
qualitativelydiversestudiescomingoutsouniformlyinthesamedirectionasthisone.”
ThePrincetoneconomistandwineloverOrleyAshenfelterhasofferedacompelling
demonstration of the power of simple statistics to outdo world-renowned experts.
AshenfelterwantedtopredictthefuturevalueoffineBordeauxwinesfrominformation
available in the year they are made. The question is important because fine wines take
yearstoreachtheirpeakquality,andthepricesofmaturewinesfromthesamevineyard
vary dramatically across different vintages; bottles filled only twelve months apart can
differ in value by a factor of 10 or more. An ability to forecast future prices is of
substantialvalue,becauseinvestorsbuywine,likeart,intheanticipationthatitsvaluewill
appreciate.
Itisgenerallyagreedthat the effectof vintage can be due only to variationsinthe
weatherduringthegrape-growingseason.Thebestwinesareproducedwhenthesummer
iswarmanddry,whichmakestheBordeauxwineindustryalikelybeneficiaryofglobal
warming. The industry is also helped by wet springs, which increase quantity without
much effect on quality. Ashenfelter converted that conventional knowledge into a
statistical formula that predicts the price of a wine—for a particular property and at a
particularage—bythreefeaturesoftheweather:theaveragetemperatureoverthesummer
growing season, the amount of rain at harvest-time, and the total rainfall during the
previouswinter.Hisformulaprovidesaccuratepriceforecastsyearsandevendecadesinto
the future. Indeed, his formula forecasts future prices much more accurately than the
currentpricesofyoungwinesdo.Thisnewexampleofa“Meehlpattern”challengesthe
abilities of the experts whose opinions help shape the early price. It also challenges
economictheory,according towhich pricesshould reflect all the available information,
including the weather. Ashenfelters formula is extremely accurate—the correlation
betweenhispredictionsandactualpricesisabove.90.
Why are experts e yinferior to algorithms? One reason, which Meehl suspected, is
thatexpertstrytobeclever,thinkoutsidethebox,andconsidercomplexcombinationsof
featuresinmakingtheirpredictions.Complexitymayworkintheoddcase,butmoreoften
than not it reduces validity. Simple combinations of features are better. Several studies
haveshownthathumandecisionmakersareinferiortoapredictionformulaevenwhen
theyare giventhescoresuggestedbytheformula!Theyfeelthattheycanoverrulethe
formulabecausetheyhaveadditionalinformationaboutthecase,buttheyarewrongmore
oftenthannot.AccordingtoMeehl,therearefewcircumstancesunderwhichitisagood
ideatosubstitutejudgmentforaformula.Inafamousthoughtexperiment,hedescribeda
formulathatpredictswhetheraparticularpersonwillgotothemoviestonightandnoted
that it is proper to disregard the formula if information is received that the individual
broke a leg today. The name “broken-leg rule” has stuck. The point, of course, is that
brokenlegsareveryrare—aswellasdecisive.
Anotherreasonfortheinferiorityofexpertjudgmentisthathumansareincorrigibly
inconsistent in making summary judgments of complex information. When asked to
evaluatethesameinformationtwice,theyfrequentlygivedifferentanswers.Theextentof
theinconsistencyisoftenamatterofrealconcern.Experiencedradiologistswhoevaluate
chestX-raysas“normal”or“abnormal”contradictthemselves20%ofthetimewhenthey
seethesamepictureonseparateoccasions.Astudyof101independentauditorswhowere
askedtoevaluatethereliabilityofinternalcorporateauditsrevealedasimilardegreeof
inconsistency. A review of 41 separate studies of the reliability of judgments made by
auditors, pathologists, psychologists, organizational managers, and other professionals
suggeststhatthislevelofinconsistencyistypical,evenwhenacaseisreevaluatedwithin
afewminutes.Unreliablejudgmentscannotbevalidpredictorsofanything.
Thewidespreadinconsistencyisprobablyduetotheextremecontextdependencyof
System 1. We know from studies of priming that unnoticed stimuli in our environment
haveasubstantialinfluenceonourthoughtsandactions.Theseinfluencesfluctuatefrom
moment to moment. The brief pleasure of a cool breeze on a hot day may make you
slightlymorepositiveandoptimisticaboutwhateveryouareevaluatingatthetime.The
prospectsofaconvictbeinggrantedparolemaychangesignificantlyduringthetimethat
elapsesbetweensuccessivefoodbreaksintheparolejudges’schedule.Becauseyouhave
littledirectknowledgeofwhatgoesoninyourmind,youwillneverknowthatyoumight
have made a different judgment or reached a different decision under very slightly
different circumstances. Formulas do not suffer from such problems. Given the same
input, they always return the same answer. When predictability is poor—which it is in
mostofthestudiesreviewedbyMeehlandhisfollowers—inconsistencyisdestructiveof
anypredictivevalidity.
Theresearchsuggestsasurprisingconclusion:tomaximizepredictiveaccuracy,final
decisionsshouldbelefttoformulas,especiallyinlow-validityenvironments.Inadmission
decisionsformedicalschools,forexample,thefinaldeterminationisoftenmadebythe
facultymemberswhointerviewthecandidate.Theevidenceisfragmentary,butthereare
solidgroundsforaconjecture:conductinganinterviewislikelytodiminishtheaccuracy
of a selection procedure, if the interviewers also make the final admission decisions.
Because interviewers are overconfident in their intuitions, they will assign too much
weighttotheirpersonalimpressionsandtoolittleweighttoothersourcesofinformation,
loweringvalidity.Similarly,theexpertswhoevaluatethequasplityofimmaturewineto
predictitsfuturehaveasourceofinformationthatalmostcertainlymakesthingsworse
ratherthanbetter:theycantastethewine.Inaddition,ofcourse,eveniftheyhaveagood
understanding of the effects of the weather on wine quality, they will not be able to
maintaintheconsistencyofaformula.
The most important development in the field since Meehl’s original work is Robyn
Dawes’s famous article “The Robust Beauty of Improper Linear Models in Decision
Making.”Thedominantstatisticalpracticeinthesocialsciencesistoassignweightstothe
differentpredictorsbyfollowinganalgorithm,calledmultipleregression,thatisnowbuilt
intoconventional software. Thelogic ofmultiple regression isunassailable: itfinds the
optimalformulaforputtingtogetheraweightedcombinationofthepredictors.However,
Dawesobservedthatthecomplexstatisticalalgorithmaddslittleornovalue.Onecando
justaswellbyselectingasetofscoresthathavesomevalidityforpredictingtheoutcome
andadjustingthevaluestomakethemcomparable(byusingstandardscoresorranks).A
formulathatcombinesthesepredictorswithequalweightsislikelytobejustasaccurate
inpredictingnewcasesasthemultiple-regressionformulathatwasoptimalintheoriginal
sample.Morerecentresearchwentfurther:formulasthatassignequalweightstoallthe
predictorsareoftensuperior,becausetheyarenotaffectedbyaccidentsofsampling.
The surprising success of equal-weighting schemes has an important practical
implication: it is possible to develop useful algorithms without any prior statistical
research. Simple equally weighted formulas based on existing statistics or on common
sense are often very good predictors of significant outcomes. In a memorable example,
Dawesshowedthatmaritalstabilityiswellpredictedbyaformula:
frequencyoflovemakingminusfrequencyofquarrels
Youdon’twantyourresulttobeanegativenumber.
Theimportantconclusionfromthisresearchisthatanalgorithmthatisconstructedon
the back of an envelope is often good enough to compete with an optimally weighted
formula,andcertainlygoodenoughtooutdoexpertjudgment.Thislogiccanbeappliedin
manydomains,rangingfromtheselectionofstocksbyportfoliomanagerstothechoices
ofmedicaltreatmentsbydoctorsorpatients.
Aclassicapplicationofthisapproachisasimplealgorithmthathassavedthelivesof
hundredsofthousandsofinfants.Obstetricianshadalwaysknownthataninfantwhois
notbreathingnormallywithinafewminutesofbirthisathighriskofbraindamageor
death. Until the anesthesiologist Virginia Apgar intervened in 1953, physicians and
midwives used their clinical judgment to determine whether a baby was in distress.
Different practitioners focused on different cues. Some watched for breathing problems
while others monitored how soon the baby cried. Without a standardized procedure,
dangersignswereoftenmissed,andmanynewborninfantsdied.
Onedayoverbreakfast,amedicalresidentaskedhowDr.Apgarwouldmakeasystematic
assessmentofanewborn.“That’seasy,”shereplied.“Youwoulddoitlikethis.”Apgar
jotteddownfivevariables(heartrate,respiration,reflex,muscletone,andcolor)andthree
scores(0,1,or2,dependingontherobustnessofeachsign).Realizingthatshemighthave
made a breakequthrough that any delivery room could implement, Apgar began rating
infants by this rule one minute after they were born. A baby with a total score of 8 or
abovewaslikelytobepink,squirming,crying,grimacing,withapulseof100ormore—
ingoodshape.Ababywithascoreof4orbelowwasprobablybluish,flaccid,passive,
withasloworweakpulse—inneedofimmediateintervention.ApplyingApgarsscore,
thestaffindeliveryroomsfinallyhadconsistentstandardsfordeterminingwhichbabies
were in trouble, and the formula is credited for an important contribution to reducing
infant mortality. The Apgar test is still used every day in every delivery room. Atul
Gawande’srecentAChecklistManifestoprovidesmanyotherexamplesofthevirtuesof
checklistsandsimplerules.
TheHostilitytoAlgorithms
Fromtheveryoutset,clinicalpsychologistsrespondedtoMeehl’sideaswithhostilityand
disbelief.Clearly,theywereinthegripofanillusionofskillintermsoftheirabilityto
makelong-termpredictions.Onreflection,itiseasytoseehowtheillusioncameabout
andeasytosympathizewiththeclinicians’rejectionofMeehl’sresearch.
The statistical evidence of clinical inferiority contradicts clinicians’ everyday
experienceofthequalityoftheirjudgments.Psychologistswhoworkwithpatientshave
manyhunchesduringeachtherapysession,anticipatinghowthepatientwillrespondtoan
intervention, guessing what will happen next. Many of these hunches are confirmed,
illustratingtherealityofclinicalskill.
The problem is that the correct judgments involve short-term predictions in the
contextofthetherapeuticinterview,askillinwhichtherapistsmayhaveyearsofpractice.
The tasks at which they fail typically require long-term predictions about the patient’s
future.Thesearemuchmoredifficult,eventhebestformulasdoonlymodestlywell,and
theyarealsotasksthattheclinicianshaveneverhadtheopportunitytolearnproperly—
they would have to wait years for feedback, instead of receiving the instantaneous
feedbackoftheclinicalsession.However,the line betweenwhatclinicianscandowell
andwhattheycannotdoatallwellisnotobvious,andcertainlynotobvioustothem.They
knowtheyareskilled,buttheydon’tnecessarilyknowtheboundariesoftheirskill.Not
surprisingly, then, the idea that a mechanical combination of a few variables could
outperform the subtle complexity of human judgment strikes experienced clinicians as
obviouslywrong.
The debate about the virtues of clinical and statistical prediction has always had a
moral dimension. The statistical method, Meehl wrote, was criticized by experienced
clinicians as “mechanical, atomistic, additive, cut and dried, artificial, unreal, arbitrary,
incomplete, dead, pedantic, fractionated, trivial, forced, static, superficial, rigid, sterile,
academic,pseudoscientificandblind.”Theclinicalmethod,ontheotherhand,waslauded
by its proponents as “dynamic, global, meaningful, holistic, subtle, sympathetic,
configural,patterned,organized,rich,deep,genuine,sensitive,sophisticated,real,living,
concrete,natural,truetolife,andunderstanding.”
Thisis anattitudewe canall recognize.When a humancompetes witha machine,
whether it is John Henry a-hammerin’ on the mountain or the chess genius Garry
KasparovfacingoffagainstthecomputerDeepBlue,oursympathiesliewithourfellow
human.Theaversiontoalgorithmsmakingdecisionsthataffecthumansisrootedinthe
strongpreferencethatmanypeoplehavefortheormnaturaloverthesyntheticorartificial.
Asked whether they would rather eat an organic or a commercially grown apple, most
peoplepreferthe“allnatural”one.Evenafterbeinginformedthatthetwoapplestastethe
same,haveidenticalnutritionalvalue,andareequallyhealthful,amajoritystillpreferthe
organicfruit.Eventheproducersofbeerhavefoundthattheycanincreasesalesbyputting
“AllNatural”or“NoPreservatives”onthelabel.
Thedeepresistancetothedemystificationofexpertiseisillustratedbythereactionof
the European wine community to Ashenfelters formula for predicting the price of
Bordeauxwines.Ashenfeltersformulaansweredaprayer:onemightthushaveexpected
thatwineloverseverywherewouldbegratefultohimfordemonstrablyimprovingtheir
abilitytoidentifythewinesthatlaterwouldbegood.Notso.TheresponseinFrenchwine
circles,wroteTheNewYorkTimes,ranged“somewherebetweenviolentandhysterical.”
Ashenfelterreportsthatoneoenophilecalledhisfindings“ludicrousandabsurd.”Another
scoffed,“Itislikejudgingmovieswithoutactuallyseeingthem.”
Theprejudiceagainstalgorithmsismagnifiedwhenthedecisionsareconsequential.
Meehlremarked,“Idonotquiteknowhowtoalleviatethehorrorsomecliniciansseemto
experiencewhentheyenvisageatreatablecasebeingdeniedtreatmentbecausea‘blind,
mechanical’ equation misclassifies him.” In contrast, Meehl and other proponents of
algorithms have argued strongly that it is unethical to rely on intuitive judgments for
important decisions if an algorithm is available that will make fewer mistakes. Their
rationalargumentiscompelling,butitrunsagainstastubbornpsychologicalreality:for
most people, the cause of a mistake matters. The story of a child dying because an
algorithmmadeamistakeismorepoignantthanthestoryofthesametragedyoccurringas
aresultofhumanerror,andthedifferenceinemotionalintensityisreadilytranslatedinto
amoralpreference.
Fortunately,thehostilitytoalgorithmswillprobablysoftenastheirroleineveryday
life continues to expand. Looking for books or music we might enjoy, we appreciate
recommendationsgeneratedbysoftware.Wetakeitforgrantedthatdecisionsaboutcredit
limits are made without the direct intervention of any human judgment. We are
increasinglyexposedtoguidelinesthathave the formofsimplealgorithms,suchas the
ratioofgoodandbadcholesterollevelsweshouldstrivetoattain.Thepublicisnowwell
awarethatformulasmaydobetterthanhumansinsomecriticaldecisionsintheworldof
sports:howmuchaprofessionalteamshouldpayforparticularrookieplayers,orwhento
puntonfourthdown.Theexpandinglistoftasksthatareassignedtoalgorithmsshould
eventually reduce the discomfort that most people feel when they first encounter the
patternofresultsthatMeehldescribedinhisdisturbinglittlebook.
LearningfromMeehl
In1955,asatwenty-one-year-oldlieutenantintheIsraeliDefenseForces,Iwasassigned
tosetupaninterviewsystemfortheentirearmy.Ifyouwonderwhysucharesponsibility
wouldbeforceduponsomeonesoyoung,bearinmindthatthestateofIsraelitselfwas
onlysevenyearsoldatthetime;allitsinstitutionswereunderconstruction,andsomeone
hadtobuildthem.Oddasitsoundstoday,mybachelorsdegreeinpsychologyprobably
qualifiedmeasthebest-trainedpsychologistinthearmy.Mydirectsupervisor,abrilliant
researcher,hadadegreeinchemistry.
An idilnterview routine was already in place when I was given my mission. Every
soldier drafted into the army completed a battery of psychometric tests, and each man
considered for combat duty was interviewed for an assessment of personality. The goal
wastoassigntherecruitascoreofgeneralfitnessforcombatandtofindthebestmatchof
his personality among various branches: infantry, artillery, armor, and so on. The
interviewers were themselves young draftees, selected for this assignment by virtue of
theirhighintelligenceandinterestindealingwithpeople.Mostwerewomen,whowereat
thetimeexemptfromcombatduty.Trainedforafewweeksinhowtoconductafifteen-to
twenty-minuteinterview,theywereencouragedtocoverarangeoftopicsandtoforma
generalimpressionofhowwelltherecruitwoulddointhearmy.
Unfortunately, follow-up evaluations had already indicated that this interview
procedurewasalmostuselessforpredictingthefuturesuccessofrecruits.Iwasinstructed
todesignaninterviewthatwouldbemoreusefulbutwouldnottakemoretime.Iwasalso
toldtotryoutthenewinterviewandtoevaluateitsaccuracy.Fromtheperspectiveofa
serious professional, I was no more qualified for the task than I was to build a bridge
acrosstheAmazon.
Fortunately, I had read Paul Meehl’s “little book,” which had appeared just a year
earlier. I was convinced by his argument that simple, statistical rules are superior to
intuitive “clinical” judgments. I concluded that the then current interview had failed at
leastinpartbecauseitallowedtheinterviewerstodowhattheyfoundmostinteresting,
whichwastolearnaboutthedynamicsoftheinterviewee’smentallife.Instead,weshould
use the limited time at our disposal to obtain as much specific information as possible
about the interviewee’s life in his normal environment. Another lesson I learned from
Meehl was that we should abandon the procedure in which the interviewers’ global
evaluationsoftherecruitdeterminedthefinaldecision.Meehl’sbooksuggestedthatsuch
evaluations should not be trusted and that statistical summaries of separately evaluated
attributeswouldachievehighervalidity.
Idecidedonaprocedureinwhichtheinterviewerswouldevaluateseveralrelevant
personality traits and score each separately. The final score of fitness for combat duty
would be computed according to a standard formula, with no further input from the
interviewers.Imadeupalistofsixcharacteristicsthatappearedrelevanttoperformance
inacombat unit,including“responsibility,”“sociability,” and“masculinepride.” I then
composed,foreachtrait,aseriesoffactualquestionsabouttheindividual’slifebeforehis
enlistment,includingthenumberofdifferentjobshehadheld,howregularandpunctual
hehadbeeninhisworkorstudies,thefrequencyofhisinteractionswithfriends,andhis
interestandparticipationinsports,amongothers.Theideawastoevaluateasobjectively
aspossiblehowwelltherecruithaddoneoneachdimension.
By focusing on standardized, factual questions, I hoped to combat the halo effect,
where favorable first impressions influence later judgments. As a further precaution
againsthalos,Iinstructedtheinterviewerstogothroughthesixtraitsinafixedsequence,
rating each trait on a five-point scale before going on to the next. And that was that. I
informedtheinterviewersthattheyneednotconcernthemselveswiththerecruit’sfuture
adjustmenttothemilitary.Theironlytaskwastoelicitrelevantfactsabouthispastandto
use that information to score each personality dimension. “Your function is to provide
reliablemeasurements,”Itoldthem.“Leavethepredicoktivevaliditytome,”bywhichI
meanttheformulathatIwasgoingtodevisetocombinetheirspecificratings.
Theinterviewerscameclosetomutiny.Thesebrightyoungpeopleweredispleasedto
be ordered, by someone hardly older than themselves, to switch off their intuition and
focusentirelyonboringfactualquestions.Oneofthemcomplained,“Youareturningus
into robots!” So I compromised. “Carry out the interview exactly as instructed,” I told
them,“andwhenyouaredone,haveyourwish:closeyoureyes,trytoimaginetherecruit
asasoldier,andassignhimascoreonascaleof1to5.”
Severalhundredinterviewswereconductedbythisnewmethod,andafewmonths
laterwecollectedevaluationsofthesoldiers’performancefromthecommandingofficers
oftheunitstowhichtheyhadbeenassigned.Theresultsmadeushappy.AsMeehl’sbook
hadsuggested,thenewinterviewprocedurewasasubstantialimprovementovertheold
one. The sum of our six ratings predicted soldiers’ performance much more accurately
than the global evaluations of the previous interviewing method, although far from
perfectly.Wehadprogressedfrom“completelyuseless”to“moderatelyuseful.”
The big surprise to me was that the intuitive judgment that the interviewers
summonedupinthe“closeyoureyes”exercisealsodidverywell,indeedjustaswellas
thesumofthesixspecificratings.IlearnedfromthisfindingalessonthatIhavenever
forgotten:intuitionaddsvalueeveninthejustlyderidedselectioninterview,butonlyafter
adisciplinedcollectionofobjectiveinformationanddisciplinedscoringofseparatetraits.
Isetaformulathatgavethe“closeyoureyes”evaluationthesameweightasthesumof
the six trait ratings. A more general lesson that I learned from this episode was do not
simplytrustintuitivejudgment—yourownorthatofothers—butdonotdismissit,either.
Someforty-fiveyearslater,afterIwonaNobelPrizeineconomics,Iwasforashort
timeaminorcelebrityinIsrael.Ononeofmyvisits,someonehadtheideaofescortingme
aroundmyoldarmybase,whichstillhousedtheunitthatinterviewsnewrecruits.Iwas
introducedtothecommandingofficerofthePsychologicalUnit,andshedescribedtheir
current interviewing practices, which had not changed much from the system I had
designed;therewas,itturnedout,aconsiderableamountofresearchindicatingthatthe
interviews still worked well. As she came to the end of her description of how the
interviewsareconducted,theofficeradded,“Andthenwetellthem,‘Closeyoureyes.’”
DoItYourself
Themessageof thischapteris readilyapplicableto tasksotherthan makingmanpower
decisions for an army. Implementing interview procedures in the spirit of Meehl and
Dawesrequiresrelativelylittleeffortbutsubstantialdiscipline.Supposethatyouneedto
hireasalesrepresentativeforyourfirm.Ifyouareseriousabouthiringthebestpossible
person for the job, this is what you should do. First, select a few traits that are
prerequisites for success in this position (technical proficiency, engaging personality,
reliability,andsoon).Don’toverdoit—sixdimensionsisagoodnumber.Thetraitsyou
chooseshouldbeasindependentaspossiblefromeachother,andyoushouldfeelthatyou
can assess them reliably by asking a few factual questions. Next, make a list of those
questionsfor eachtrait andthink abouthow youwill scoreit, sayon a1–5 scale.You
shouldhaveanideaofwhatyouwillcaleigl“veryweak”or“verystrong.”
Thesepreparationsshould take youhalfan hour orso,a smallinvestmentthatcan
makeasignificantdifferenceinthequalityofthepeopleyouhire.Toavoidhaloeffects,
youmustcollecttheinformationononetraitatatime,scoringeachbeforeyoumoveon
tothenextone.Donotskiparound.Toevaluateeachcandidate,addupthesixscores.
Becauseyouareinchargeofthefinaldecision,youshouldnotdoa“closeyoureyes.”
Firmlyresolvethatyouwill hire thecandidatewhosefinalscore isthehighest,evenif
thereisanotheronewhomyoulikebetter—trytoresistyourwishtoinventbrokenlegsto
changetheranking.Avastamountofresearchoffersapromise:youaremuchmorelikely
tofindthebestcandidateifyouusethisprocedurethanifyoudowhatpeoplenormallydo
insuchsituations,whichistogointotheinterviewunpreparedandtomakechoicesbyan
overallintuitivejudgmentsuchas“IlookedintohiseyesandlikedwhatIsaw.”
SpeakingofJudgesvs.Formulas
“Whenever we can replace human judgment by a formula, we should at least
considerit.”
“Hethinkshisjudgmentsarecomplexandsubtle,butasimplecombinationofscores
couldprobablydobetter.”
“Let’sdecideinadvancewhatweighttogivetothedatawehaveonthecandidates’
pastperformance.Otherwisewewillgivetoomuchweighttoourimpressionfrom
theinterviews.”
P
ExpertIntuition:WhenCanWeTrustIt?
Professional controversies bring out the worst in academics. Scientific journals
occasionally publish exchanges, often beginning with someone’s critique of anothers
research,followedbyareplyandarejoinder.Ihavealwaysthoughtthattheseexchanges
areawasteoftime.Especiallywhentheoriginalcritiqueissharplyworded,thereplyand
therejoinderareoftenexercisesinwhatIhavecalledsarcasmforbeginnersandadvanced
sarcasm.Therepliesrarelyconcedeanythingtoabitingcritique,anditisalmostunheard
offor arejoinder toadmit thatthe originalcritique wasmisguided orerroneous inany
way. On a few occasions I have responded to criticisms that I thought were grossly
misleading,becauseafailuretorespondcanbeinterpretedasconcedingerror,butIhave
never found the hostile exchanges instructive. In search of another way to deal with
disagreements, I have engaged in a few “adversarial collaborations,” in which scholars
whodisagreeonthescienceagreetowriteajointlyauthoredpaperontheirdifferences,
and sometimes conduct research together. In especially tense situations, the research is
moderatedbyanarbiter.
MymostsatisfyingandproductiveadversarialcollaborationwaswithGaryKlein,the
intellectualleaderofanassociationofscholarsandpractitionerswhodonotlikethekind
ofworkIdo. They callthemselvesstudentsofNaturalisticDecisionMaking,or NDM,
andmostlyworkinorganizationswherethe”0%Љtyoftenstudyhowexpertswork.The
NDMersadamantlyrejectthefocusonbiasesintheheuristicsandbiasesapproach.They
criticizethismodelasoverlyconcernedwithfailuresanddrivenbyartificialexperiments
ratherthanbythestudyofrealpeopledoingthingsthatmatter.Theyaredeeplyskeptical
aboutthevalueofusingrigidalgorithmstoreplacehumanjudgment,andPaulMeehlis
not among their heroes. Gary Klein has eloquently articulated this position over many
years.
Thisishardlythebasisforabeautifulfriendship,butthereismoretothestory.Ihad
neverbelievedthatintuitionisalwaysmisguided.IhadalsobeenafanofKlein’sstudies
ofexpertiseinfirefighterssinceIfirstsawadraftofapaperhewroteinthe1970s,and
wasimpressedbyhisbookSourcesofPower,muchofwhichanalyzeshowexperienced
professionalsdevelopintuitiveskills.Iinvitedhimtojoininanefforttomaptheboundary
thatseparatesthemarvelsofintuitionfromitsflaws.Hewasintriguedbytheideaandwe
wentaheadwiththeproject—withnocertaintythatitwouldsucceed.Wesetouttoanswer
aspecificquestion:Whencanyoutrustanexperiencedprofessionalwhoclaimstohave
anintuition?ItwasobviousthatKleinwouldbemoredisposedtobetrusting,andIwould
bemoreskeptical.Butcouldweagreeonprinciplesforansweringthegeneralquestion?
Oversevenor eightyearswe hadmanydiscussions, resolvedmanydisagreements,
almost blew up more than once, wrote many draft s, became friends, and eventually
publishedajointarticlewithatitlethattellsthestory:“ConditionsforIntuitiveExpertise:
AFailuretoDisagree.”Indeed,wedidnotencounterrealissuesonwhichwedisagreed—
butwedidnotreallyagree.
MarvelsandFlaws
Malcolm Gladwell’s bestseller Blink appeared while Klein and I were working on the
project, and it was reassuring to find ourselves in agreement about it. Gladwell’s book
openswiththememorablestoryofartexpertsfacedwithanobjectthatisdescribedasa
magnificentexampleofakouros,asculptureofastridingboy.Severaloftheexpertshad
strongvisceralreactions:theyfeltintheirgutthatthestatuewasafakebutwerenotable
toarticulatewhatitwasaboutitthatmadethemuneasy.Everyonewhoreadthebook—
millionsdid—remembersthatstoryasatriumphofintuition.Theexpertsagreedthatthey
knewthesculpturewasafakewithoutknowinghowtheyknew—theverydefinitionof
intuition.Thestoryappearstoimplythatasystematicsearchforthecuethatguidedthe
expertswouldhavefailed,butKleinandIbothrejectedthatconclusion.Fromourpointof
view, such an inquiry was needed, and if it had been conducted properly (which Klein
knowshowtodo),itwouldprobablyhavesucceeded.
Although many readers of the kouros example were surely drawn to an almost
magicalviewofexpertintuition,Gladwellhimselfdoesnotholdthatposition.Inalater
chapterhedescribesamassivefailureofintuition:AmericanselectedPresidentHarding,
whose only qualification for the position was that he perfectly looked the part. Square
jawedandtall,hewastheperfectimageofastronganddecisiveleader.Peoplevotedfor
someonewholookedstronganddecisivewithoutanyotherreasontobelievethathewas.
An intuitive prediction of how Harding would perform as president arose from
substitutingonequestionforanother.Areaderofthisbookshouldexpectsuchanintuition
tobeheldwithconfidence.
IntuitionasRecognition
TheearlyexperiencesthatshapedKlein’sviewsofintuitionwerestarklydifferentfrom
mine. My thinking was formed by observing the illusion of validity in myself and by
readingPaulMeehl’sdemonstrationsoftheinferiorityofclinicalprediction.Incontrast,
Klein’sviewswereshapedbyhisearlystudiesoffiregroundcommanders(theleadersof
firefightingteams).Hefollowedthemastheyfoughtfiresandlaterinterviewedtheleader
abouthisthoughtsashemadedecisions.AsKleindescribeditinourjointarticle,heand
hiscollaborators
investigated how the commanders could make good decisions without comparing
options.Theinitialhypothesiswasthatcommanderswouldrestricttheiranalysisto
only a pair of options, but that hypothesis proved to be incorrect. In fact, the
commanders usually generated only a single option, and that was all they needed.
Theycould drawon therepertoire ofpatterns thatthey had compiled duringmore
thanadecadeofbothrealandvirtualexperiencetoidentifyaplausibleoption,which
theyconsideredfirst.Theyevaluatedthisoptionbymentallysimulatingittoseeifit
would work in the situation they were facing…. If the course of action they were
considering seemed appropriate, they would implement it. If it had shortcomings,
theywouldmodifyit.Iftheycouldnoteasilymodifyit,theywouldturntothenext
mostplausibleoptionandrunthroughthesameprocedureuntilanacceptablecourse
ofactionwasfound.
Klein elaborated this description into a theory of decision making that he called the
recognition-primeddecision(RPD)model,whichappliestofirefightersbutalsodescribes
expertise in other domains, including chess. The process involves both System 1 and
System2.Inthefirstphase,atentativeplancomestomindbyanautomaticfunctionof
associativememory—System1.Thenextphaseisadeliberateprocessinwhichtheplanis
mentally simulated to check if it will work—an operation of System 2. The model of
intuitivedecisionmakingaspatternrecognitiondevelopsideaspresentedsometimeago
byHerbertSimon,perhapstheonlyscholarwhoisrecognizedandadmiredasaheroand
foundingfigurebyallthecompetingclansandtribesinthestudyofdecisionmaking.I
quotedHerbertSimon’sdefinitionofintuitionintheintroduction,butitwillmakemore
sense when I repeat it now: “The situation has provided a cue; this cue has given the
expertaccesstoinformationstoredinmemory,andtheinformationprovidestheanswer.
Intuitionisnothingmoreandnothinglessthanrecognition.”
This strong statement reduces the apparent magic of intuition to the everyday
experienceofmemory.Wemarvelatthestoryofthefirefighterwhohasasuddenurgeto
escapeaburninghousejustbeforeitcollapses,becausethefirefighterknowsthedanger
intuitively, “without knowing how he knows.” However, we also do not know how we
immediatelyknowthatapersonweseeasweenteraroomisourfriendPeter.Themoral
of Simon’s remark is that the mystery of knowing without knowing is not a distinctive
featureofintuition;itisthenormofmentallife.
AcquiringSkill
Howdoestheinformationthatsupportsintuitionget“storedinmemory”?Certaintypesof
intuitionsareacquiredveryquickly.Wehaveinheritedfromourancestorsagreatfacility
tolearnwhentobeafraid.Indeed,oneexperienceisoftensufficienttoestablishalong-
termaversionandfear.Manyofushavethevisceralmemoryofasingledubiousdishtto
hatstillleavesusvaguelyreluctanttoreturntoarestaurant.Allofustenseupwhenwe
approachaspotinwhichanunpleasanteventoccurred,evenwhenthereisnoreasonto
expectittohappenagain.Forme,onesuchplaceistherampleadingtotheSanFrancisco
airport,whereyearsagoadriverinthethroesofroadragefollowedmefromthefreeway,
rolled down his window, and hurled obscenities at me. I never knew what caused his
hatred,butIrememberhisvoicewheneverIreachthatpointonmywaytotheairport.
Mymemoryoftheairportincidentisconsciousanditfullyexplainstheemotionthat
comeswithit.Onmanyoccasions,however,youmayfeeluneasyinaparticularplaceor
whensomeoneusesaparticularturnofphrasewithouthavingaconsciousmemoryofthe
triggeringevent.Inhindsight,youwilllabelthatuneaseanintuitionifitisfollowedbya
badexperience.Thismodeofemotionallearningiscloselyrelatedtowhathappenedin
Pavlov’s famous conditioning experiments, in which the dogs learned to recognize the
soundofthebellasasignalthatfoodwascoming.WhatPavlov’s dogslearnedcanbe
describedasalearnedhope.Learnedfearsareevenmoreeasilyacquired.
Fearcanalsobelearned—quiteeasily,infact—bywordsratherthanbyexperience.
The fireman who had the “sixth sense” of danger had certainly had many occasions to
discussandthinkabouttypesoffireshewasnotinvolvedin,andtorehearseinhismind
whatthecuesmightbeandhowheshouldreact.AsIrememberfromexperience,ayoung
platoon commander with no experience of combat will tense up while leading troops
throughanarrowingravine,becausehewastaughttoidentifytheterrainasfavoringan
ambush.Littlerepetitionisneededforlearning.
Emotionallearningmaybequick,butwhatweconsideras“expertise”usuallytakesa
long time to develop. The acquisition of expertise in complex tasks such as high-level
chess,professionalbasketball,orfirefightingisintricateandslowbecauseexpertiseina
domain is not a single skill but rather a large collection of miniskills. Chess is a good
example. An expert player can understand a complex position at a glance, but it takes
years to develop that level of ability. Studies of chess masters have shown that at least
10,000 hours of dedicated practice (about 6 years of playing chess 5 hours a day) are
required to attain the highest levels of performance. During those hours of intense
concentration,aseriouschessplayerbecomesfamiliarwiththousandsofconfigurations,
eachconsistingofanarrangementofrelatedpiecesthatcanthreatenordefendeachother.
Learninghigh-levelchesscanbecomparedtolearningtoread.Afirstgraderworks
hardatrecognizingindividuallettersandassemblingthemintosyllablesandwords,buta
goodadultreaderperceivesentireclauses.Anexpertreaderhasalsoacquiredtheabilityto
assemble familiar elements in a new pattern and can quickly “recognize” and correctly
pronounceawordthatshehasneverseenbefore.Inchess,recurrentpatternsofinteracting
piecesplaytheroleofletters,andachesspositionisalongwordorasentence.
Askilledreaderwhoseesitforthefirsttimewillbeabletoreadtheopeningstanzaof
LewisCarroll’s“Jabberwocky”withperfectrhythmandintonation,aswellaspleasure:
’Twasbrillig,andtheslithytoves
Didgyreandgimbleinthewabe:
Allmimsyweretheborogoves,
Andthemomerathsoutgrabe.
Acquiringexpertiseinchessisharderandslowerthanlearningtoreadbecausethereare
many more letters in the “alphabet” of chess and because the “words” consist of many
letters. After thousands of hours of practice, however, chess masters are able to read a
chess situation at a glance. The few moves that come to their mind are almost always
strongandsometimescreative.Theycandealwitha“word”theyhaveneverencountered,
andtheycanfindanewwaytointerpretafamiliarone.
TheEnvironmentofSkill
KleinandIquicklyfoundthatweagreedbothonthenatureofintuitiveskillandonhowit
is acquired. We still needed to agree on our key question: When can you trust a self-
confidentprofessionalwhoclaimstohaveanintuition?
Weeventuallyconcludedthatourdisagreementwasdueinparttothefactthatwehad
different experts in mind. Klein had spent much time with fireground commanders,
clinical nurses, and other professionals who have real expertise. I had spent more time
thinking about clinicians, stock pickers, and political scientists trying to make
unsupportable long-term forecasts. Not surprisingly, his default attitude was trust and
respect;minewasskepticism.Hewasmorewillingtotrustexpertswhoclaimanintuition
because,ashetoldme,trueexpertsknowthelimitsoftheirknowledge.Iarguedthatthere
aremanypseudo-expertswhohavenoideathattheydonotknowwhattheyaredoing(the
illusionofvalidity),andthatasageneralpropositionsubjectiveconfidenceiscommonly
toohighandoftenuninformative.
EarlierItracedpeople’sconfidenceinabelieftotworelatedimpressions:cognitive
easeand coherence. We are confident when thestory we tell ourselves comeseasily to
mind,withnocontradictionandno competingscenario.Buteaseandcoherencedo not
guarantee that a belief held with confidence is true. The associative machine is set to
suppressdoubtandtoevokeideasandinformationthatarecompatiblewiththecurrently
dominantstory. A mindthatfollowsWYSIATIwillachievehighconfidencemuchtoo
easilybyignoringwhatitdoesnotknow.Itisthereforenotsurprisingthatmanyofusare
pronetohavehighconfidenceinunfoundedintuitions.KleinandIeventuallyagreedon
animportantprinciple:theconfidencethatpeoplehaveintheirintuitionsisnotareliable
guide to their validity. In other words, do not trust anyone—including yourself—to tell
youhowmuchyoushouldtrusttheirjudgment.
If subjective confidence is not to be trusted, how can we evaluate the probable
validity of an intuitive judgment? When do judgments reflect true expertise? When do
theydisplayanillusionofvalidity?Theanswercomesfromthetwobasicconditionsfor
acquiringaskill:
anenvironmentthatissufficientlyregulartobepredictable
anopportunitytolearntheseregularitiesthroughprolongedpractice
Whenboth theseconditionsare satisfied,intuitions are likelyto beskilled. Chessis an
extreme example of a regular environment, but bridge and poker also provide robust
statisticalregularitiesthatcansupportskill. Physicians, nurses,athletes,andfirefighters
alsofacecomplexbutfundamentallyorderlysituations.TheaccurateintuitionsthatGary
Kleinhasdescribedareduetohighlyvalidcuesthatestheexpert’sSystem1haslearned
to use, even if System 2 has not learned to name them. In contrast, stock pickers and
politicalscientistswhomakelong-termforecastsoperateinazero-validityenvironment.
Theirfailuresreflectthebasicunpredictabilityoftheeventsthattheytrytoforecast.
Some environments are worse than irregular. Robin Hogarth described “wicked”
environments, in which professionals are likely to learn the wrong lessons from
experience. He borrows from Lewis Thomas the example of a physician in the early
twentieth century who often had intuitions about patients who were about to develop
typhoid. Unfortunately, he tested his hunch by palpating the patient’s tongue, without
washinghishandsbetweenpatients.Whenpatientafterpatientbecameill,thephysician
developedasenseofclinicalinfallibility.Hispredictionswereaccurate—butnotbecause
hewasexercisingprofessionalintuition!
Meehl’s clinicians were not inept and their failure was not due to lack of talent. They
performedpoorlybecause they were assigned tasksthatdidnothaveasimplesolution.
Theclinicians’predicamentwaslessextremethanthezero-validityenvironmentoflong-
termpoliticalforecasting,buttheyoperatedinlow-validitysituationsthatdidnotallow
high accuracy. We know this to be the case because the best statistical algorithms,
althoughmoreaccuratethanhumanjudges,wereneververyaccurate.Indeed,thestudies
by Meehl and his followers never produced a “smoking gun” demonstration, a case in
which clinicians completely missed a highly valid cue that the algorithm detected. An
extremefailureofthiskindisunlikelybecausehumanlearningisnormallyefficient.Ifa
strongpredictivecueexists,humanobserverswillfindit,givenadecentopportunitytodo
so. Statistical algorithms greatly outdo humans in noisy environments for two reasons:
theyaremorelikelythanhumanjudgestodetectweaklyvalidcuesandmuchmorelikely
tomaintainamodestlevelofaccuracybyusingsuchcuesconsistently.
It is wrong to blame anyone for failing to forecast accurately in an unpredictable
world.However,itseemsfairtoblameprofessionalsforbelievingtheycansucceedinan
impossible task. Claims for correct intuitions in an unpredictable situation are self-
delusionalatbest,sometimesworse.Intheabsenceofvalidcues,intuitive“hits”aredue
eithertoluckortolies.Ifyoufindthisconclusionsurprising,youstillhavealingering
belief that intuition is magic. Remember this rule: intuition cannot be trusted in the
absenceofstableregularitiesintheenvironment.
FeedbackandPractice
Someregularitiesintheenvironmentareeasiertodiscoverandapplythanothers.Thinkof
howyoudevelopedyourstyleofusingthebrakesonyourcar.Asyouweremasteringthe
skilloftakingcurves,yougraduallylearnedwhentoletgooftheacceleratorandwhen
andhowhardtousethebrakes.Curvesdiffer,andthevariabilityyouexperiencedwhile
learningensures that you are nowready tobrake atthe right timeand strengthfor any
curveyouencounter.Theconditionsforlearningthisskillareideal,becauseyoureceive
immediateandunambiguousfeedbackeverytimeyougoaroundabend:themildreward
ofacomfortableturnorthemildpunishmentofsomedifficultyinhandlingthecarifyou
brake either too hard or not quite hard enough. The situations that face a harbor pilot
maneuveringlargeshipsarenolessregular,butskillismuchmoredifficulttoacquireby
sheer experience because of the long delay between actions and their manoticeable
outcomes. Whether professionals have a chance to develop intuitive expertise depends
essentiallyonthequalityandspeedoffeedback,aswellasonsufficientopportunityto
practice.
Expertiseisnota single skill;itisacollectionof skills,andthesameprofessional
may be highly expert in some of the tasks in her domain while remaining a novice in
others.Bythetimechessplayersbecomeexperts,theyhave“seeneverything”(oralmost
everything), but chess is an exception in this regard. Surgeons can be much more
proficient in some operations than in others. Furthermore, some aspects of any
professional’s tasks are much easier to learn than others. Psychotherapists have many
opportunities to observe the immediate reactions of patients to what they say. The
feedbackenablesthemtodeveloptheintuitiveskilltofindthewordsandthetonethatwill
calmanger,forgeconfidence,orfocusthepatient’sattention.Ontheotherhand,therapists
do not have a chance to identify which general treatment approach is most suitable for
different patients. The feedback they receive from their patients’ long-term outcomes is
sparse, delayed, or (usually) nonexistent, and in any case too ambiguous to support
learningfromexperience.
Among medical specialties, anesthesiologists benefit from good feedback, because
theeffectsoftheiractionsarelikelytobequicklyevident.Incontrast,radiologistsobtain
littleinformationabouttheaccuracyofthediagnosestheymakeandaboutthepathologies
theyfail todetect. Anesthesiologistsare thereforein abetter positionto developuseful
intuitive skills. If an anesthesiologist says, “I have a feeling something is wrong,”
everyoneintheoperatingroomshouldbepreparedforanemergency.
Here again, as in the case of subjective confidence, the experts may not know the
limits of their expertise. An experienced psychotherapist knows that she is skilled in
workingoutwhatisgoingoninherpatient’smindandthatshehasgoodintuitionsabout
what the patient will say next. It is tempting for her to conclude that she can also
anticipate how well the patient will do next year, but this conclusion is not equally
justified. Short-term anticipation and long-term forecasting are different tasks, and the
therapisthashadadequateopportunitytolearnonebutnottheother.Similarly,afinancial
expertmayhaveskillsinmanyaspectsofhistradebutnotinpickingstocks,andanexpert
intheMiddleEastknowsmanythingsbutnotthefuture.Theclinicalpsychologist,the
stockpicker,andthepunditdohaveintuitiveskillsinsomeoftheirtasks,buttheyhave
notlearnedtoidentifythesituationsandthetasksinwhichintuitionwillbetraythem.The
unrecognizedlimitsofprofessionalskillhelpexplainwhyexpertsareoftenoverconfident.
EvaluatingValidity
At the end of our journey, Gary Klein and I agreed on a general answer to our initial
question: When can you trust an experienced professional who claims to have an
intuition?Ourconclusionwasthatforthemostpartitispossibletodistinguishintuitions
thatarelikelytobevalidfromthosethatarelikelytobebogus.Asinthejudgmentof
whetheraworkofartisgenuineorafake,youwillusuallydobetterbyfocusingonits
provenancethanbylookingatthepieceitself.Iftheenvironmentissufficientlyregular
andifthejudgehashadachancetolearnitsregularities,theassociativemachinerywill
recognizesituationsandgeneratequickandaccuratepredictionsanddecisions.Youcan
trustsomeone’sintuitionsiftheseconditionsaremet.
Unfortunately, associativentu memory also generates subjectively compelling
intuitions that are false. Anyone who has watched the chess progress of a talented
youngsterknowswellthatskilldoesnotbecomeperfectallatonce,andthatonthewayto
nearperfectionsome mistakesaremade with greatconfidence.When evaluatingexpert
intuitionyoushouldalwaysconsiderwhethertherewasanadequateopportunitytolearn
thecues,eveninaregularenvironment.
Inalessregular,orlow-validity,environment,theheuristicsofjudgmentareinvoked.
System 1 is often able to produce quick answers to difficult questions by substitution,
creatingcoherencewherethereisnone.Thequestionthatisansweredisnottheonethat
wasintended,buttheanswerisproducedquicklyandmaybesufficientlyplausibletopass
thelaxandlenientreviewofSystem2.Youmaywanttoforecastthecommercialfutureof
acompany,forexample,andbelievethatthisiswhatyouarejudging,whileinfactyour
evaluationisdominatedbyyourimpressionsoftheenergyandcompetenceofitscurrent
executives.Becausesubstitutionoccursautomatically,youoftendonotknowtheoriginof
ajudgmentthatyou(yourSystem2)endorseandadopt.Ifitistheonlyonethatcomesto
mind,itmaybesubjectivelyundistinguishablefromvalidjudgmentsthatyoumakewith
expertconfidence.Thisiswhysubjectiveconfidenceisnotagooddiagnosticofaccuracy:
judgmentsthatanswerthewrongquestioncanalsobemadewithhighconfidence.
Youmaybeasking,Whydidn’tGaryKleinandIcomeupimmediatelywiththeidea
ofevaluatinganexpert’sintuitionbyassessingtheregularityoftheenvironmentandthe
expert’slearninghistory—mostlysettingasidetheexpert’sconfidence?Andwhatdidwe
thinktheanswercouldbe?Thesearegoodquestionsbecausethecontoursofthesolution
wereapparentfromthebeginning.Weknewattheoutsetthatfiregroundcommandersand
pediatricnurseswouldendupononesideoftheboundaryofvalidintuitionsandthatthe
specialtiesstudiedbyMeehlwouldbeontheother,alongwithstockpickersandpundits.
Itisdifficulttoreconstructwhatitwasthattookusyears,longhoursofdiscussion,
endlessexchangesofdrafts and hundreds of e-mails negotiatingoverwords,andmore
than once almost giving up. But this is what always happens when a project ends
reasonably well: once you understand the main conclusion, it seems it was always
obvious.
Asthetitleofourarticlesuggests,KleinandIdisagreedlessthanwehadexpected
andacceptedjointsolutionsofalmostallthesubstantiveissuesthatwereraised.However,
wealsofoundthatourearlydifferencesweremorethananintellectualdisagreement.We
haddifferentattitudes,emotions,andtastes,andthosechangedremarkablylittleoverthe
years.Thisismostobviousinthefactsthatwefindamusingandinteresting.Kleinstill
winceswhenthewordbiasismentioned,andhestillenjoysstoriesinwhichalgorithmsor
formal procedures lead to obviously absurd decisions. I tend to view the occasional
failuresofalgorithmsasopportunitiestoimprovethem.Ontheotherhand,Ifindmore
pleasure than Klein does in the come-uppance of arrogant experts who claim intuitive
powersinzero-validitysituations.Inthelongrun,however,findingasmuchintellectual
agreement as we did is surely more important than the persistent emotional differences
thatremained.
SpeakingofExpertIntuition
“Howmuchexpertisedoesshehaveinthisparticulartask?Howmuchpracticehas
shehad?”
“Does he really believe that the environment of start-ups is sufficiently regular to
justifyanintuitionthatgoesagainstthebaserates?”
“Sheisveryconfidentinherdecision,butsubjectiveconfidenceisapoorindexof
theaccuracyofajudgment.”
“Did he really have an opportunity to learn? How quick and how clear was the
feedbackhereceivedonhisjudgments?”
P
TheOutsideView
AfewyearsaftermycollaborationwithAmosbegan,Iconvincedsomeofficialsinthe
IsraeliMinistryofEducationoftheneedforacurriculumtoteachjudgmentanddecision
makinginhighschools.TheteamthatIassembledtodesignthecurriculumandwritea
textbookforit includedseveralexperienced teachers, someof my psychologystudents,
andSeymourFox,thendeanoftheHebrewUniversity’sSchoolofEducation,whowasan
expertincurriculumdevelopment.
AftermeetingeveryFridayafternoonforaboutayear,wehadconstructedadetailed
outlineofthesyllabus,hadwrittenacoupleofchapters,andhadrunafewsamplelessons
in the classroom. We all felt that we had made good progress. One day, as we were
discussing procedures for estimating uncertain quantities, the idea of conducting an
exerciseoccurredtome.Iaskedeveryonetowritedownanestimateofhowlongitwould
take us to submit a finished draft of the textbook to the Ministry of Education. I was
following a procedure that we already planned to incorporate into our curriculum: the
properwaytoelicitinformationfromagroupisnotbystartingwithapublicdiscussion
butbyconfidentiallycollectingeachperson’sjudgment.Thisproceduremakesbetteruse
oftheknowledgeavailabletomembersofthegroupthanthecommonpracticeofopen
discussion.Icollectedtheestimatesandjottedtheresultsontheblackboard.Theywere
narrowlycenteredaroundtwoyears;thelowendwasoneandahalf,thehighendtwoand
ahalfyears.
Then I had another idea. I turned to Seymour, our curriculum expert, and asked
whether he could think of other teams similar to ours that had developed a curriculum
fromscratch.Thiswasatimewhenseveralpedagogicalinnovationslike“newmath”had
beenintroduced,andSeymoursaidhecouldthinkofquiteafew.Ithenaskedwhetherhe
knewthehistoryoftheseteamsinsomedetail,anditturnedoutthathewasfamiliarwith
several.Iaskedhimtothinkoftheseteamswhentheyhadmadeasmuchprogressaswe
had.Howlong,fromthatpoint,didittakethemtofinishtheirtextbookprojects?
He fell silent. When he finally spoke, it seemed to me that he was blushing,
embarrassedbyhisownanswer:“Youknow,Ineverrealizedthisbefore,butinfactnotall
theteamsatastagecomparabletoourseverdidcompletetheirtask.Asubstantialfraction
oftheteamsendedupfailingtofinishthejob.”
Thiswasworrisome;wehadneverconsideredthepossibilitythatwemightfail.My
anxiety rising, I asked how large he estimated that fraction was. Rw l sidering
t20;About40%,”heanswered.Bynow,apallofgloomwasfallingovertheroom.The
nextquestionwasobvious:“Thosewhofinished,”Iasked.“Howlongdidittakethem?”
“Icannotthinkofanygroupthatfinishedinlessthansevenyears,”hereplied,“norany
thattookmorethanten.”
Igraspedatastraw:“Whenyoucompareourskillsandresourcestothoseoftheother
groups, how good are we? How would you rank us in comparison with these teams?”
Seymour did not hesitate long this time. “We’re below average,” he said, “but not by
much.”Thiscame asacomplete surprisetoall ofus—includingSeymour, whose prior
estimate had been well within the optimistic consensus of the group. Until I prompted
him,therewasnoconnectioninhismindbetweenhisknowledgeofthehistoryofother
teamsandhisforecastofourfuture.
OurstateofmindwhenweheardSeymourisnotwelldescribedbystatingwhatwe
“knew.” Surely all of us “knew” that a minimum of seven years and a 40% chance of
failurewasamoreplausibleforecastofthefateofourprojectthanthenumberswehad
writtenonourslipsofpaperafewminutesearlier.Butwedidnotacknowledgewhatwe
knew.Thenewforecaststillseemedunreal,becausewecouldnotimaginehowitcould
takesolongtofinishaprojectthatlookedsomanageable.Nocrystalballwasavailableto
tellusthestrangesequenceofunlikelyeventsthatwereinourfuture.Allwecouldsee
was a reasonable plan that should produce a book in about two years, conflicting with
statistics indicating that other teams had failed or had taken an absurdly long time to
complete their mission. What we had heard was base-rate information, from which we
shouldhaveinferredacausalstory:ifsomanyteamsfailed,andifthosethatsucceeded
tooksolong,writingacurriculumwassurelymuchharderthanwehadthought.Butsuch
aninferencewouldhaveconflictedwithourdirectexperienceofthegoodprogresswehad
beenmaking.ThestatisticsthatSeymourprovidedweretreatedasbaseratesnormallyare
—notedandpromptlysetaside.
Weshouldhavequitthatday.Noneofuswaswillingtoinvestsixmoreyearsofwork
inaprojectwitha40%chanceoffailure.Althoughwemusthavesensedthatpersevering
wasnotreasonable,thewarningdidnotprovideanimmediatelycompellingreasontoquit.
Afterafewminutesofdesultorydebate,wegatheredourselvestogetherandcarriedonas
ifnothinghadhappened.Thebookwaseventuallycompletedeight(!)yearslater.Bythat
time I was no longer living in Israel and had long since ceased to be partof the team,
whichcompletedthetaskaftermanyunpredictablevicissitudes.Theinitialenthusiasmfor
theideaintheMinistryofEducationhadwanedbythetimethetextwasdeliveredandit
wasneverused.
This embarrassing episode remains one of the most instructive experiences of my
professional life. I eventually learned three lessons from it. The first was immediately
apparent:Ihadstumbledontoadistinctionbetweentwoprofoundlydifferentapproaches
toforecasting,whichAmosandIlaterlabeledtheinsideviewandtheoutsideview.The
secondlessonwasthatourinitialforecastsofabouttwoyearsforthecompletionofthe
projectexhibitedaplanningfallacy.Ourestimateswereclosertoabest-casescenariothan
toa realisticassessment. Iwas slowerto acceptthe thirdlesson, whichI callirrational
perseverance:thefollywedisplayedthatdayinfailingtoabandontheproject.Facinga
choice,wegaveuprationalityratherthangiveuptheenterprise.
DrawntotheInsideView
On that long-ago Friday, our curriculum expert made two judgments about the same
problemandarrivedatverydifferentanswers.Theinsideviewistheone thatallofus,
includingSeymour,spontaneouslyadoptedtoassessthefutureofourproject.Wefocused
onourspecificcircumstancesandsearchedforevidenceinourownexperiences.Wehada
sketchyplan:weknewhowmanychaptersweweregoingtowrite,andwehadanideaof
howlongithadtakenustowritethetwothatwehadalreadydone.Themorecautious
amongusprobablyaddedafewmonthstotheirestimateasamarginoferror.
Extrapolatingwasamistake.Wewereforecastingbasedontheinformationinfrontof
us—WYSIATI—butthechapterswewrotefirstwereprobablyeasierthanothers,andour
commitmenttotheprojectwasprobablythenatitspeak.Butthemainproblemwasthat
wefailedtoallowforwhatDonaldRumsfeldfamouslycalledthe“unknownunknowns.”
Therewasnowayforustoforesee,thatday,thesuccessionofeventsthatwouldcausethe
projecttodragoutforsolong.Thedivorces,theillnesses,thecrisesofcoordinationwith
bureaucraciesthatdelayedtheworkcouldnotbeanticipated.Sucheventsnotonlycause
thewritingofchapterstoslowdown,theyalsoproducelongperiodsduringwhichlittleor
noprogressismadeatall.Thesamemusthavebeentrue,ofcourse,fortheotherteams
thatSeymourknewabout.Themembersofthoseteamswerealsounabletoimaginethe
eventsthatwouldcausethemtospendsevenyearstofinish,orultimatelyfailtofinish,a
projectthattheyevidentlyhadthoughtwasveryfeasible.Likeus,theydidnotknowthe
oddstheywerefacing.Therearemanywaysforanyplantofail,andalthoughmostof
themaretooimprobabletobeanticipated,thelikelihoodthatsomethingwillgowrongin
abigprojectishigh.
ThesecondquestionIaskedSeymourdirectedhisattentionawayfromusandtoward
aclassofsimilarcases.Seymourestimatedthebaserateofsuccessinthatreferenceclass:
40%failureandseventotenyearsforcompletion.Hisinformalsurveywassurelynotup
to scientific standards of evidence, but it provided a reasonable basis for a baseline
prediction:thepredictionyoumakeaboutacaseifyouknownothingexceptthecategory
towhichitbelongs.Aswesawearlier,thebaselinepredictionshouldbetheanchorfor
further adjustments. If you are asked to guess the height of a woman about whom you
knowonlythatshelivesinNewYorkCity,yourbaselinepredictionisyourbestguessof
theaverageheightofwomeninthecity.Ifyouarenowgivencase-specificinformation,
forexamplethatthewoman’ssonisthestartingcenterofhishighschoolbasketballteam,
youwilladjustyourestimateawayfromthemeanintheappropriatedirection.Seymours
comparisonofourteamtootherssuggestedthattheforecastofouroutcomewasslightly
worsethanthebaselineprediction,whichwasalreadygrim.
The spectacular accuracy of the outside-view forecast in our problem was surely a
flukeandshouldnotcountasevidenceforthevalidityoftheoutsideview.Theargument
fortheoutsideviewshouldbemadeongeneralgrounds:ifthereferenceclassisproperly
chosen, the outside view will give an indication of where the ballpark is, and it may
suggest,asitdidinourcase,thattheinside-viewforecastsarenotevenclosetoit.
Forapsychologist,thediscrepancybetweenSeymourstwojudgmentsisstriking.He
had in his head all the knowledge required to estimate the statistics of an appropriate
reference class, but he reached his initial estimate without ever using that knowledge.
Seymours forecast from his insidethaa view was not an adjustment from the baseline
prediction,whichhadnotcometohismind.Itwasbasedontheparticularcircumstances
ofourefforts.LiketheparticipantsintheTomWexperiment,Seymourknewtherelevant
baseratebutdidnotthinkofapplyingit.
UnlikeSeymour,therestofusdidnothaveaccesstotheoutsideviewandcouldnot
haveproducedareasonablebaselineprediction.Itisnoteworthy,however,thatwedidnot
feelwe neededinformationabout otherteams tomake our guesses.My requestfor the
outsideviewsurprisedallofus,includingme!Thisisacommonpattern:peoplewhohave
informationaboutanindividualcaserarelyfeeltheneedtoknowthestatisticsoftheclass
towhichthecasebelongs.
Whenwewereeventuallyexposedtotheoutsideview,wecollectivelyignoredit.We
can recognize what happened to us; it is similar to the experiment that suggested the
futilityofteachingpsychology.Whentheymadepredictionsaboutindividualcasesabout
whichtheyhad alittleinformation (a briefand blandinterview),Nisbett and Borgidas
studentscompletelyneglectedtheglobalresultstheyhadjustlearned.“Pallid”statistical
informationisroutinelydiscardedwhenitisincompatiblewithone’spersonalimpressions
ofacase.Inthecompetitionwiththeinsideview,theoutsideviewdoesn’tstandachance.
Thepreferencefortheinsideviewsometimescarriesmoralovertones.Ionceasked
my cousin, a distinguished lawyer, a question about a reference class: “What is the
probabilityofthedefendantwinningincaseslikethisone?”Hissharpanswerthat“every
case is unique” was accompanied by a look that made it clear he found my question
inappropriate and superficial. A proud emphasis on the uniqueness of cases is also
commoninmedicine,inspiteofrecentadvancesinevidence-basedmedicinethatpoint
the other way. Medical statistics and baseline predictions come up with increasing
frequency in conversations between patients and physicians. However, the remaining
ambivalence about the outside view in the medical profession is expressed in concerns
abouttheimpersonalityofproceduresthatareguidedbystatisticsandchecklists.
ThePlanningFallacy
Inlightofboththeoutside-viewforecastandtheeventualoutcome,theoriginalestimates
we made that Friday afternoon appear almost delusional. This should not come as a
surprise: overly optimistic forecasts of the outcome of projects are found everywhere.
AmosandIcoinedthetermplanningfallacytodescribeplansandforecaststhat
areunrealisticallyclosetobest-casescenarios
couldbeimprovedbyconsultingthestatisticsofsimilarcases
Examples of the planning fallacy abound in the experiences of individuals,
governments,andbusinesses.Thelistofhorrorstoriesisendless.
In July 1997, the proposed new Scottish Parliament building in Edinburgh was
estimatedtocostupto£40million.ByJune1999,thebudgetforthebuildingwas
£109million.InApril2000,legislatorsimposeda£195million“caponcosts.”By
November2001,theydemandedanestimateof“finalcost,”whichwassetat£241
million. That estimated final cost rose twice in 2002, ending the year at £294.6
million. It rose three times more in 2003, reaching £375.8 million by June. The
building was finally comanspleted in 2004 at an ultimate cost of roughly £431
million.
A2005studyexaminedrailprojectsundertakenworldwidebetween1969and1998.
Inmorethan90%ofthecases,thenumberofpassengersprojectedtousethesystem
wasoverestimated.Eventhoughthesepassengershortfallswerewidelypublicized,
forecastsdidnotimproveoverthosethirtyyears;onaverage,plannersoverestimated
how many people would use the new rail projects by 106%, and the average cost
overrunwas45%.Asmoreevidenceaccumulated,theexpertsdidnotbecomemore
reliantonit.
In2002,asurveyofAmericanhomeownerswhohadremodeledtheirkitchensfound
that,on average,theyhadexpectedthejobto cost$18,658;infact,theyendedup
payinganaverageof$38,769.
The optimism of planners and decision makers is not the only cause of overruns.
Contractorsofkitchenrenovations and ofweaponsystems readily admit(thoughnotto
theirclients)thattheyroutinelymakemostoftheirprofitonadditionstotheoriginalplan.
Thefailuresofforecastinginthesecasesreflectthecustomers’inabilitytoimaginehow
much their wishes will escalate over time. They end up paying much more than they
wouldiftheyhadmadearealisticplanandstucktoit.
Errorsintheinitialbudgetarenotalwaysinnocent.Theauthorsofunrealisticplans
areoftendrivenbythedesiretogettheplanapproved—whetherbytheirsuperiorsorbya
client—supportedbytheknowledgethatprojectsarerarelyabandonedunfinishedmerely
becauseofoverrunsincostsorcompletiontimes.Insuchcases,thegreatestresponsibility
foravoidingtheplanningfallacylieswiththedecisionmakerswhoapprovetheplan.If
theydonotrecognizetheneedforanoutsideview,theycommitaplanningfallacy.
MitigatingthePlanningFallacy
The diagnosis of and the remedy for the planning fallacy have not changed since that
Fridayafternoon,buttheimplementationoftheideahascomealongway.Therenowned
Danish planning expert Bent Flyvbjerg, now at Oxford University, offered a forceful
summary:
The prevalent tendency to underweight or ignore distributional information is
perhaps the major source of error in forecasting. Planners should therefore make
every effort to frame the forecasting problem so as to facilitate utilizing all the
distributionalinformationthatisavailable.
This may be considered the single most important piece of advice regarding how to
increase accuracy in forecasting through improved methods. Using such distributional
information from other ventures similar to that being forecasted is called taking an
“outsideview”andisthecuretotheplanningfallacy.
Thetreatmentfortheplanningfallacyhasnowacquiredatechnicalname,reference
class forecasting, and Flyvbjerg has applied it to transportation projects in several
countries. The outside view is implemented by using a large database, which provides
informationonbothplansandoutcomesforhundredsofprojectsallovertheworld,and
canbeusedtoprovidestatisticalinformationaboutthelikelyoverrunsofcostandtime,
andaboutthelikelyunderperformanceofprojectsofdifferenttypes.
The forecasting method that Flyvbjerg applies is similar to the practices
recommendedforovercomingbase-rateneglect:
1. Identify an appropriate reference class (kitchen renovations, large railway projects,
etc.).
2. Obtainthestatisticsofthereferenceclass(intermsofcostpermileofrailway,orof
thepercentagebywhichexpendituresexceededbudget).Usethestatisticstogenerate
abaselineprediction.
3. Usespecificinformationaboutthecasetoadjustthebaselineprediction,ifthereare
particularreasonstoexpecttheoptimisticbiastobemoreorlesspronouncedinthis
projectthaninothersofthesametype.
Flyvbjerg’sanalysesareintendedtoguidetheauthoritiesthatcommissionpublicprojects,
byprovidingthestatisticsofoverrunsinsimilarprojects.Decisionmakersneedarealistic
assessment of the costs and benefits of a proposal before making the final decision to
approve it. They may also wish to estimate the budget reserve that they need in
anticipation of overruns, although such precautions often become self-fulfilling
prophecies.AsoneofficialtoldFlyvbjerg,“Abudgetreserveistocontractorsasredmeat
istolions,andtheywilldevourit.”
Organizationsfacethechallengeofcontrollingthetendencyofexecutivescompeting
for resources to present overly optimistic plans. A well-run organization will reward
plannersforpreciseexecutionandpenalizethemforfailingtoanticipatedifficulties,and
for failing to allow for difficulties that they could not have anticipated—the unknown
unknowns.
DecisionsandErrors
ThatFridayafternoonoccurredmorethanthirtyyearsago.I often thought aboutitand
mentioneditinlecturesseveraltimeseachyear.Someofmyfriendsgotboredwiththe
story,butIkeptdrawingnewlessonsfromit.AlmostfifteenyearsafterIfirstreportedon
theplanning fallacywith Amos, Ireturned to the topic withDan Lovallo.Togetherwe
sketchedatheoryofdecisionmakinginwhichtheoptimisticbiasisasignificantsourceof
risk taking. In the standard rational model of economics, people take risks because the
odds are favorable—they accept some probability of a costly failure because the
probabilityofsuccessissufficient.Weproposedanalternativeidea.
Whenforecastingtheoutcomesofriskyprojects,executivestooeasilyfallvictimto
theplanningfallacy.Initsgrip,theymakedecisionsbasedondelusionaloptimismrather
thanonarationalweightingofgains,losses,andprobabilities.Theyoverestimatebenefits
andunderestimatecosts.Theyspinscenariosofsuccesswhileoverlookingthepotential
formistakesandmiscalculations.Asaresult,theypursueinitiativesthatareunlikelyto
comeinonbudgetorontimeortodelivertheexpectedreturns—oreventobecompleted.
In this view, people often (but not always) take on risky projects because they are
overlyoptimisticabouttheoddstheyface.Iwillreturntothisideaseveraltimesinthis
book—it probably contributes to an explanation of why people litigate, why they start
wars,andwhytheyopensmallbusinesses.
FailingaTest
For many years, I thought that the main point of the curriculum story was what I had
learnedaboutmyfriendSeymour:thathisbestguessaboutthefutureofourprojectwas
notinformedbywhatheknewaboutsimilarprojects.Icameoffquitewellinmytelling
ofthestory,irInwhichIhadtheroleofcleverquestionerandastutepsychologist.Ionly
recentlyrealizedthatIhadactuallyplayedtherolesofchiefdunceandineptleader.
Theprojectwasmyinitiative,anditwasthereforemyresponsibilitytoensurethatit
madesenseandthatmajorproblemswereproperlydiscussedbytheteam,butIfailedthat
test.Myproblemwasnolongertheplanningfallacy.Iwascuredofthatfallacyassoonas
I heard Seymours statistical summary. If pressed, I would have said that our earlier
estimateshadbeenabsurdlyoptimistic.Ifpressedfurther,Iwouldhaveadmittedthatwe
hadstartedtheprojectonfaultypremisesandthatweshouldatleastconsiderseriouslythe
option of declaring defeat and going home. But nobody pressed me and there was no
discussion;wetacitlyagreedtogoonwithoutanexplicitforecastofhowlongtheeffort
wouldlast.Thiswaseasytodobecausewehadnotmadesuchaforecasttobeginwith.If
wehadhad areasonablebaselineprediction when westarted,we would nothavegone
intoit,butwe had alreadyinvestedagreatdeal of effort—aninstanceofthe sunk-cost
fallacy,which wewilllookat more closelyinthenext part ofthebook. It wouldhave
beenembarrassingforus—especiallyforme—togiveupatthatpoint,andthereseemed
tobenoimmediatereasontodoso.Itiseasiertochangedirectionsinacrisis,butthiswas
notacrisis,onlysomenewfactsabout people we did not know.Theoutsideviewwas
mucheasiertoignorethanbadnewsinourowneffort.Icanbestdescribeourstateasa
formoflethargy—anunwillingnesstothinkaboutwhathadhappened.Sowecarriedon.
There was no further attempt at rational planning for the rest of the time I spent as a
memberoftheteam—aparticularlytroublingomissionforateamdedicatedtoteaching
rationality.IhopeIamwisertoday,andIhaveacquiredahabitoflookingfortheoutside
view.Butitwillneverbethenaturalthingtodo.
SpeakingoftheOutsideView
“He’stakinganinsideview.Heshouldforgetabouthisowncaseandlookforwhat
happenedinothercases.”
“She is the victim of a planning fallacy. She’s assuming a best-case scenario, but
therearetoomanydifferentwaysfortheplantofail,andshecannotforeseethem
all.”
“Suppose you did not know a thing about this particular legal case, only that it
involvesamalpracticeclaimbyanindividualagainstasurgeon.Whatwouldbeyour
baselineprediction?Howmanyofthesecasessucceedincourt?Howmanysettle?
Whataretheamounts?Isthecasewearediscussingstrongerorweakerthansimilar
claims?”
“Wearemakinganadditionalinvestmentbecausewedonotwanttoadmitfailure.
Thisisaninstanceofthesunk-costfallacy.”
P
TheEngineofCapitalism
Theplanningfallacyisonlyoneofthemanifestationsofapervasiveoptimisticbias.sidto
adtionsofaMostofusviewtheworldasmorebenignthanitreallyis,ourownattributes
asmorefavorablethantheytrulyare,andthegoalsweadoptasmoreachievablethanthey
arelikelytobe.Wealsotendtoexaggerateourabilitytoforecastthefuture,whichfosters
optimisticoverconfidence.Intermsofitsconsequencesfordecisions,theoptimisticbias
maywellbethemostsignificantofthecognitivebiases.Becauseoptimisticbiascanbe
bothablessingandarisk,youshouldbebothhappyandwaryifyouaretemperamentally
optimistic.
Optimists
Optimismisnormal,butsomefortunatepeoplearemoreoptimisticthantherestofus.If
youaregeneticallyendowedwithanoptimisticbias,youhardlyneedtobetoldthatyou
arealuckyperson—youalreadyfeelfortunate.Anoptimisticattitudeislargelyinherited,
anditispartofageneraldispositionforwell-being,whichmayalsoincludeapreference
for seeing the bright side of everything. If you were allowed one wish for your child,
seriously consider wishing him or her optimism. Optimists are normally cheerful and
happy,andthereforepopular;theyareresilientinadaptingtofailuresandhardships,their
chances of clinical depression are reduced, their immune system is stronger, they take
better care of their health, they feel healthier than others and are in fact likely to live
longer. A study of people who exaggerate their expected life span beyond actuarial
predictions showed that they work longer hours, are more optimistic about their future
income, are more likely to remarry after divorce (the classic “triumph of hope over
experience”),andaremorepronetobetonindividualstocks.Ofcourse,theblessingsof
optimismareofferedonlytoindividualswhoareonlymildlybiasedandwhoareableto
“accentuatethepositive”withoutlosingtrackofreality.
Optimistic individuals play a disproportionate role in shaping our lives. Their
decisions make a difference; they are the inventors, the entrepreneurs, the political and
militaryleaders—notaveragepeople.Theygottowheretheyarebyseekingchallenges
andtakingrisks.Theyaretalentedandtheyhavebeenlucky,almostcertainlyluckierthan
theyacknowledge.Theyareprobablyoptimisticbytemperament;asurveyoffoundersof
smallbusinessesconcludedthatentrepreneursaremoresanguinethanmidlevelmanagers
about life in general. Their experiences of success have confirmed their faith in their
judgmentandintheirabilitytocontrolevents.Theirself-confidenceisreinforcedbythe
admiration of others. This reasoning leads to a hypothesis: the people who have the
greatestinfluenceonthelivesofothersarelikelytobeoptimisticandoverconfident,and
totakemorerisksthantheyrealize.
Theevidencesuggeststhatanoptimisticbiasplaysarole—sometimesthedominantrole
—whenever individuals or institutions voluntarily take on significant risks. More often
thannot, risktakers underestimate theodds theyface, and do invest sufficienteffortto
findoutwhattheoddsare.Becausetheymisreadtherisks,optimisticentrepreneursoften
believetheyareprudent,evenwhentheyarenot.Theirconfidenceintheirfuturesuccess
sustainsapositivemoodthathelpsthemobtainresourcesfromothers,raisethemoraleof
their employees, and enhance their prospects of prevailing. When action is needed,
optimism,evenofthemildlydelusionalvariety,maybeagoodthing.
EntrepreneurialDelusions
ThechancesthatasmallbusinesswillthesurviveforfiveyearsintheUnitedStatesare
about35%.Buttheindividualswhoopensuchbusinessesdonotbelievethatthestatistics
applytothem.AsurveyfoundthatAmericanentrepreneurstendtobelievetheyareina
promising line of business: their average estimate of the chances of success for “any
businesslikeyours”was60%—almostdoublethetruevalue.Thebiaswasmoreglaring
whenpeopleassessedtheoddsoftheirownventure.Fully81%oftheentrepreneursput
theirpersonaloddsofsuccessat7outof10orhigher,and33%saidtheirchanceoffailing
waszero.
Thedirectionofthebiasisnotsurprising.Ifyouinterviewedsomeonewhorecently
opened an Italian restaurant, you would not expect her to have underestimated her
prospectsforsuccessortohaveapoorviewofherabilityasarestaurateur.Butyoumust
wonder:Wouldshestillhaveinvestedmoneyandtimeifshehadmadeareasonableeffort
tolearntheodds—or,ifshedidlearntheodds(60%ofnewrestaurantsareoutofbusiness
afterthreeyears),paidattentiontothem?Theideaofadoptingtheoutsideviewprobably
didn’toccurtoher.
Oneofthebenefitsofanoptimistictemperamentisthatitencouragespersistencein
the face of obstacles. But persistence can be costly. An impressive series of studies by
ThomasÅstebroshedslightonwhathappenswhenoptimistsreceivebadnews.Hedrew
his data from a Canadian organization—the Inventors Assistance Program—which
collectsasmallfeetoprovideinventorswithanobjectiveassessmentofthecommercial
prospects of their idea. The evaluations rely on careful ratings of each invention on 37
criteria,includingneedfortheproduct,costofproduction,andestimatedtrendofdemand.
Theanalystssummarizetheirratingsbyalettergrade,whereDandEpredictfailure—a
predictionmadeforover70%oftheinventionstheyreview.Theforecastsoffailureare
remarkably accurate: only 5 of 411 projects that were given the lowest grade reached
commercialization,andnonewassuccessful.
Discouragingnewsledabouthalfoftheinventorstoquitafterreceivingagradethat
unequivocally predicted failure. However, 47% of them continued development efforts
evenafterbeingtoldthattheirprojectwashopeless,andonaveragethesepersistent(or
obstinate) individuals doubled their initial losses before giving up. Significantly,
persistenceafterdiscouragingadvicewasrelativelycommonamonginventorswhohada
highscoreon apersonalitymeasure ofoptimism—onwhich inventors generallyscored
higher than the general population. Overall, the return on private invention was small,
“lowerthanthereturnonprivateequityandonhigh-risksecurities.”Moregenerally,the
financialbenefitsofself-employmentaremediocre:giventhesamequalifications,people
achievehigheraveragereturnsbysellingtheirskillstoemployersthanbysettingouton
theirown.Theevidencesuggeststhatoptimismiswidespread,stubborn,andcostly.
Psychologists have confirmed that most people genuinely believe that they are
superiortomostothersonmostdesirabletraits—theyarewillingtobetsmallamountsof
money on these beliefs in the laboratory. In the market, of course, beliefs in one’s
superiority have significant consequences. Leaders of large businesses sometimes make
hugebetsinexpensivemergersandacquisitions,actingonthemistakenbeliefthatthey
canmanagethe assets ofanothercompany better thanitscurrent owners do.Thestock
market commonly responds by downgrading the value of the acquiring firm, because
experience has shown that efforts to integrate large firms fail more often than they
succeed.The misguidedacquisitions havebeen explainedby a “hubris hypothesis”: the
eivxecutivesoftheacquiringfirmaresimplylesscompetentthantheythinktheyare.
TheeconomistsUlrikeMalmendierandGeoffreyTateidentifiedoptimisticCEOsby
the amount of company stock that they owned personally and observed that highly
optimistic leaders took excessive risks. They assumed debt rather than issue equity and
were more likely than others to “overpay for target companies and undertake value-
destroying mergers.” Remarkably, the stock of the acquiring company suffered
substantiallymoreinmergersiftheCEOwasoverlyoptimisticbytheauthors’measure.
The stock market is apparently able to identify overconfident CEOs. This observation
exoneratestheCEOsfromoneaccusationevenasitconvictsthemofanother:theleaders
ofenterpriseswhomakeunsoundbetsdonotdosobecausetheyarebettingwithother
people’smoney.Onthecontrary,theytakegreaterriskswhentheypersonallyhavemore
atstake.ThedamagecausedbyoverconfidentCEOsiscompoundedwhenthebusiness
pressanointsthemascelebrities;theevidenceindicatesthatprestigiouspressawardsto
theCEOarecostlytostockholders.Theauthorswrite,“We findthatfirmswithaward-
winning CEOs subsequently underperform, in terms both of stock and of operating
performance.Atthesametime,CEOcompensationincreases,CEOsspendmoretimeon
activitiesoutsidethecompanysuchas writing booksandsittingonoutsideboards, and
theyaremorelikelytoengageinearningsmanagement.”
Manyyearsago,mywifeandIwereonvacationonVancouverIsland,lookingforaplace
tostay.Wefoundanattractivebutdesertedmotelonalittle-traveledroadinthemiddleof
aforest.Theownerswereacharmingyoungcouplewhoneededlittlepromptingtotellus
theirstory.TheyhadbeenschoolteachersintheprovinceofAlberta;theyhaddecidedto
change their life and used their life savings to buy this motel, which had been built a
dozenyearsearlier.Theytolduswithoutironyorself-consciousnessthattheyhadbeen
abletobuyitcheap,“becausesixorsevenpreviousownershadfailedtomakeagoofit.”
Theyalsotoldusaboutplanstoseekaloantomaketheestablishmentmoreattractiveby
buildingarestaurantnexttoit.Theyfeltnoneedtoexplainwhytheyexpectedtosucceed
wheresixorsevenothershadfailed.Acommonthreadofboldnessandoptimismlinks
businesspeople,frommotelownerstosuperstarCEOs.
The optimistic risk taking of entrepreneurs surely contributes to the economic
dynamismofacapitalisticsociety,evenifmostrisktakersendupdisappointed.However,
Marta Coelho of the London School of Economics has pointed out the difficult policy
issuesthatarisewhenfoundersofsmallbusinessesaskthegovernmenttosupportthemin
decisions that are most likely to end badly. Should the government provide loans to
would-be entrepreneurs who probably will bankrupt themselves in a few years? Many
behavioraleconomistsarecomfortablewiththe“libertarianpaternalistic”proceduresthat
help people increase their savings rate beyond what they would do on their own. The
questionofwhetherandhowgovernmentshouldsupportsmallbusinessdoesnothavean
equallysatisfyinganswer.
CompetitionNeglect
Itistemptingtoexplainentrepreneurialoptimismbywishfulthinking,butemotionisonly
part of the story. Cognitive biases play an important role, notably the System 1 feature
WYSIATI.
Wefocusonourgoal,anchoronourplan,andneglectrelevantbaserates,exposing
ourselvestotneseheplanningfallacy.
Wefocusonwhatwewanttodoandcando,neglectingtheplansandskillsofothers.
Bothinexplainingthepastandinpredictingthefuture,wefocusonthecausalroleof
skillandneglecttheroleofluck.Wearethereforepronetoanillusionofcontrol.
We focus on what we know and neglect what we do not know, which makes us
overlyconfidentinourbeliefs.
Theobservationthat“90%ofdriversbelievetheyarebetterthanaverage”isawell-
establishedpsychologicalfindingthathasbecomepartoftheculture,anditoftencomes
upasaprimeexampleofamoregeneralabove-averageeffect.However,theinterpretation
ofthefindinghaschangedinrecentyears,fromself-aggrandizementtoacognitivebias.
Considerthesetwoquestions:
Areyouagooddriver?
Areyoubetterthanaverageasadriver?
Thefirstquestioniseasyandtheanswercomesquickly:mostdriverssayyes.Thesecond
questionismuchharderandformostrespondentsalmostimpossibletoanswerseriously
andcorrectly,becauseitrequiresanassessmentoftheaveragequalityofdrivers.Atthis
pointin the book it comesas no surprise that peoplerespond toa difficultquestion by
answeringaneasierone.Theycomparethemselvestotheaveragewithouteverthinking
about the average. The evidence for the cognitive interpretation of the above-average
effectisthatwhenpeopleareaskedaboutatasktheyfinddifficult(formanyofusthis
could be “Are you better than average in starting conversations with strangers?”), they
readily rate themselves as below average. The upshot is that people tend to be overly
optimisticabouttheirrelativestandingonanyactivityinwhichtheydomoderatelywell.
Ihavehadseveraloccasionstoaskfoundersandparticipantsininnovativestart-upsa
question:Towhatextentwilltheoutcomeofyoureffortdependonwhatyoudoinyour
firm? This is evidently an easy question; the answer comes quickly and in my small
sampleithasneverbeenlessthan80%.Evenwhentheyarenotsuretheywillsucceed,
theseboldpeoplethinktheirfateisalmostentirelyintheirownhands.Theyaresurely
wrong:theoutcomeofastart-updependsasmuchontheachievementsofitscompetitors
andonchangesinthemarketasonitsownefforts.However,WYSIATIplaysitspart,and
entrepreneurs naturally focus on what they know best—their plans and actions and the
mostimmediatethreatsandopportunities,suchastheavailabilityoffunding.Theyknow
lessabouttheircompetitorsandthereforefinditnaturaltoimagineafutureinwhichthe
competitionplayslittlepart.
Colin Camerer and Dan Lovallo, who coined the concept of competition neglect,
illustrateditwithaquotefromthethenchairmanofDisneyStudios.Askedwhysomany
expensivebig-budgetmoviesarereleasedonthesamedays(suchasMemorialDayand
IndependenceDay),hereplied:
Hubris. Hubris. If you only think about your own business, you think, “I’ve got a
goodstorydepartment,I’vegotagoodmarketingdepartment,we’regoingtogoout
anddothis.”Andyoudon’tthinkthateverybodyelseisthinkingthesameway.Ina
given weekend in a year you’ll have five movies open, and there’s certainly not
enoughpeopletogoaround.re
Thecandidanswerreferstohubris,butitdisplaysnoarrogance,noconceitofsuperiority
to competing studios. The competition is simply not part of the decision, in which a
difficult question has again been replaced by an easier one. The question that needs an
answeristhis:Consideringwhatotherswilldo,howmanypeoplewillseeourfilm?The
questionthestudioexecutivesconsideredissimplerandreferstoknowledgethatismost
easilyavailabletothem:Dowehaveagoodfilmandagoodorganizationtomarketit?
ThefamiliarSystem1processesofWYSIATIandsubstitutionproducebothcompetition
neglectandtheabove-averageeffect.Theconsequenceofcompetitionneglectisexcess
entry:morecompetitorsenterthemarketthanthemarketcanprofitablysustain,sotheir
average outcome is a loss. The outcome is disappointing for the typical entrant in the
market,buttheeffectontheeconomyasawholecouldwellbepositive.Infact,Giovanni
DosiandDanLovallocallentrepreneurialfirmsthatfailbutsignalnewmarketstomore
qualified competitors “optimistic martyrs”—good for the economy but bad for their
investors.
Overconfidence
For a number of years, professors at Duke University conducted a survey in which the
chief financial officers of large corporations estimated the returns of the Standard &
Poorsindexoverthefollowingyear.TheDukescholarscollected11,600suchforecasts
and examined their accuracy. The conclusion was straightforward: financial officers of
large corporations had no clue about the short-term future of the stock market; the
correlationbetweentheirestimatesandthetruevaluewasslightlylessthanzero!When
theysaidthemarketwouldgodown,itwasslightlymorelikelythannotthatitwouldgo
up.Thesefindingsarenotsurprising.ThetrulybadnewsisthattheCFOsdidnotappear
toknowthattheirforecastswereworthless.
InadditiontotheirbestguessaboutS&Preturns,theparticipantsprovidedtwoother
estimates:avaluethattheywere90%surewouldbetoohigh,andonethattheywere90%
surewouldbetoolow.Therangebetweenthetwovaluesiscalledan“80%confidence
interval”andoutcomesthatfalloutsidetheintervalarelabeled“surprises.”Anindividual
whosetsconfidenceintervalsonmultipleoccasionsexpectsabout20%oftheoutcomesto
besurprises.Asfrequentlyhappensinsuchexercises,therewerefartoomanysurprises;
theirincidencewas67%,morethan3timeshigherthanexpected.ThisshowsthatCFOs
were grossly overconfident about their ability to forecast the market. Overconfidence is
anothermanifestationofWYSIATI:whenweestimateaquantity,werelyoninformation
that comes to mind and construct a coherent story in which the estimate makes sense.
Allowing for the information that does not come to mind—perhaps because one never
knewit—isimpossible.
Theauthorscalculatedtheconfidenceintervalsthatwouldhavereducedtheincidence
of surprises to 20%. The results were striking. To maintain the rate of surprises at the
desiredlevel,theCFOsshouldhavesaid,yearafteryear,“Thereisan80%chancethatthe
S&P return next year will be between –10% and +30%.” The confidence interval that
properly reflects the CFOs’ knowledge (more precisely, their ignorance) is more than 4
timeswiderthantheintervalstheyactuallystated.
Socialpsychologycomesintothepicturehere,becausetheanswerthatatruthfulCFO
wouldofferisplainlyridiculous.ACFOwhoinformshiscolleaguesthat“th%”>iereisa
good chance that the S&P returns will be between –10% and +30%” can expect to be
laughedoutoftheroom.Thewideconfidenceintervalisaconfessionofignorance,which
is not socially acceptable for someone who is paid to be knowledgeable in financial
matters.Eveniftheyknewhowlittletheyknow,theexecutiveswouldbepenalizedfor
admittingit.PresidentTrumanfamouslyaskedfora“one-armedeconomist”whowould
takeaclear stand; hewas sick andtiredof economistswhokeptsaying, “Ontheother
hand…”
Organizations that take the word of overconfident experts can expect costly
consequences. The study of CFOs showed that those who were most confident and
optimisticabouttheS&Pindexwerealsooverconfidentandoptimisticabouttheprospects
of their own firm, which went on to take more risk than others. As Nassim Taleb has
argued, inadequate appreciation of the uncertainty of the environment inevitably leads
economic agents to take risks they should avoid. However, optimism is highly valued,
socially and in the market; people and firms reward the providers of dangerously
misleading information more than they reward truth tellers. One of the lessons of the
financial crisis that led to the Great Recession is that there are periods in which
competition,amongexpertsandamongorganizations,createspowerfulforcesthatfavora
collectiveblindnesstoriskanduncertainty.
The social and economic pressures that favor overconfidence are not restricted to
financialforecasting.Otherprofessionalsmustdealwiththefactthatanexpertworthyof
the name is expected to display high confidence. Philip Tetlock observed that the most
overconfidentexpertswerethemostlikelytobeinvitedtostruttheirstuffinnewsshows.
Overconfidencealsoappearstobeendemicinmedicine.Astudyofpatientswhodiedin
theICUcomparedautopsyresultswiththediagnosisthatphysicianshadprovidedwhile
the patients were still alive. Physicians also reported their confidence. The result:
“clinicianswhowere‘completelycertain’ofthediagnosisantemortemwerewrong40%
ofthetime.”Hereagain,expertoverconfidenceisencouragedbytheirclients:“Generally,
it is considered a weakness and a sign of vulnerability for clinicians to appear unsure.
Confidenceisvaluedoveruncertaintyandthereisaprevailingcensureagainstdisclosing
uncertaintytopatients.”Expertswhoacknowledgethefullextentoftheirignorancemay
expecttobereplacedbymoreconfidentcompetitors,whoarebetterabletogainthetrust
ofclients.Anunbiasedappreciationofuncertaintyisacornerstoneofrationality—butitis
not what people and organizations want. Extreme uncertainty is paralyzing under
dangerous circumstances, and the admission that one is merely guessing is especially
unacceptable when the stakes are high. Acting on pretended knowledge is often the
preferredsolution.
When they come together, the emotional, cognitive, and social factors that support
exaggeratedoptimismareaheadybrew,whichsometimesleadspeopletotakerisksthat
they would avoid if they knew the odds. There is no evidence that risk takers in the
economicdomainhaveanunusualappetiteforgamblesonhighstakes;theyaremerely
lessawareofrisksthanmoretimidpeopleare.DanLovalloandIcoinedthephrase“bold
forecastsandtimiddecisions”todescribethebackgroundofrisktaking.
Theeffectsofhighoptimismondecisionmakingare,atbest,amixedblessing,butthe
contributionofoptimismtogoodimplementationiscertainlypositive.Themainbenefitof
optimismisresilienceinthefaceofsetbacks.AccordingtoMartinSeligman,thefounder
of potelsitive psychology, an “optimistic explanation style” contributes to resilience by
defending one’s self-image. In essence, the optimistic style involves taking credit for
successesbutlittleblameforfailures.Thisstylecanbetaught,atleasttosomeextent,and
Seligman has documented the effects of training on various occupations that are
characterizedbyahighrateoffailures,suchas cold-call sales of insurance(acommon
pursuitinpre-Internetdays).Whenonehasjusthadadoorslammedinone’sfacebyan
angryhomemaker,thethoughtthat“shewasanawfulwoman”isclearlysuperiorto“Iam
an inept salesperson.” I have always believed that scientific research is another domain
whereaformofoptimismisessentialtosuccess:Ihaveyettomeetasuccessfulscientist
who lacks the ability to exaggerate the importance of what he or she is doing, and I
believethatsomeonewholacksadelusionalsenseofsignificancewillwiltinthefaceof
repeated experiences of multiple small failures and rare successes, the fate of most
researchers.
ThePremortem:APartialRemedy
Can overconfident optimism be overcome by training? I am not optimistic. There have
been numerous attempts to train people to state confidence intervals that reflect the
imprecisionoftheirjudgments,withonlyafewreportsofmodestsuccess.Anoftencited
example is that geologists at Royal Dutch Shell became less overconfident in their
assessmentsofpossibledrillingsitesaftertrainingwithmultiplepastcasesforwhichthe
outcome was known. In other situations, overconfidence was mitigated (but not
eliminated) when judges were encouraged to consider competing hypotheses. However,
overconfidenceisadirectconsequenceoffeaturesofSystem1thatcanbetamed—butnot
vanquished. The main obstacle is that subjective confidence is determined by the
coherence of the story one has constructed, not by the quality and amount of the
informationthatsupportsit.
Organizationsmaybebetterabletotameoptimismandindividualsthanindividuals
are. The best idea for doing so was contributed by Gary Klein, my “adversarial
collaborator”whogenerallydefendsintuitivedecisionmakingagainstclaimsofbiasand
istypicallyhostiletoalgorithms.Helabelshisproposalthepremortem.Theprocedureis
simple: when the organization has almost come to an important decision but has not
formally committed itself, Klein proposes gathering for a brief session a group of
individuals who are knowledgeable about the decision. The premise of the session is a
shortspeech:“Imaginethatweareayearintothefuture.Weimplementedtheplanasit
nowexists.Theoutcomewasadisaster.Pleasetake5to10minutestowriteabriefhistory
ofthatdisaster.”
Gary Klein’s idea of the premortem usually evokes immediate enthusiasm. After I
describeditcasuallyatasessioninDavos,someonebehindmemuttered,“Itwasworth
comingtoDavosjustforthis!”(IlaternoticedthatthespeakerwastheCEOofamajor
international corporation.) The premortem has two main advantages: it overcomes the
groupthink that affects many teams once a decision appears to have been made, and it
unleashestheimaginationofknowledgeableindividualsinamuch-neededdirection.
Asateamconvergesonadecision—andespeciallywhentheleadertipsherhand—
public doubts about the wisdom of the planned move are gradually suppressed and
eventuallycometobetreatedasevidenceofflawedloyaltytotheteamanditsleaders.
Thesuppressionofdoubtcontributestooverconfidenceinagroupwhereonlysupporters
ofthedecisionhaveavfilepos-id=“filepos726557”>naceaanddoesnotprovidecomplete
protectionagainstnastysurprises,butitgoessomewaytowardreducingthedamageof
plansthataresubjecttothebiasesofWYSIATIanduncriticaloptimism.
SpeakingofOptimism
“Theyhaveanillusionofcontrol.Theyseriouslyunderestimatetheobstacles.”
“Theyseemtosufferfromanacutecaseofcompetitorneglect.”
“Thisisacaseofoverconfidence.Theyseemtobelievetheyknowmorethanthey
actuallydoknow.”
“Weshouldconductapremortemsession.Someonemaycomeupwithathreatwe
haveneglected.”
P
Part4
P
Choices
P
Bernoulli’sErrors
One day in the early 1970s, Amos handed me a mimeographed essay by a Swiss
economist named Bruno Frey, which discussed the psychological assumptions of
economictheory.Ivividlyrememberthecolorofthecover:darkred.BrunoFreybarely
recallswritingthepiece,butIcanstillreciteitsfirstsentence:“Theagentofeconomic
theoryisrational,selfish,andhistastesdonotchange.”
Iwasastonished.Myeconomistcolleaguesworkedinthebuildingnextdoor,butI
had not appreciated the profound difference between our intellectual worlds. To a
psychologist,itisself-evidentthatpeopleareneitherfullyrationalnorcompletelyselfish,
andthat theirtastesare anythingbut stable.Our two disciplinesseemed tobe studying
differentspecies,whichthebehavioraleconomistRichardThalerlaterdubbedEconsand
Humans.
UnlikeEcons,theHumansthatpsychologistsknowhaveaSystem1.Theirviewof
theworldislimitedbytheinformationthatisavailableatagivenmoment(WYSIATI),
and therefore they cannot be as consistent and logical as Econs. They are sometimes
generousandoftenwillingtocontributetothegrouptowhichtheyareattached.Andthey
often have little idea of what they will like next year or even tomorrow. Here was an
opportunityforaninterestingconversationacrosstheboundariesofthedisciplines.Idid
notanticipatethatmycareerwouldbedefinedbythatconversation.
SoonafterheshowedmeFrey’sarticle,Amossuggestedthatwemakethestudyof
decisionmakingournextproject.Iknewnexttonothingaboutthetopic,butAmoswasan
expertandastarofthefield,andheMathematicalPsychology,andhedirectedmetoa
fewchaptersthathethoughtwouldbeagoodintroduction.
Isoonlearnedthatoursubjectmatterwouldbepeople’sattitudestoriskyoptionsand
that we would seek to answer a specific question: What rules govern people’s choices
betweendifferentsimplegamblesandbetweengamblesandsurethings?
Simple gambles (such as “40% chance to win $300”) are to students of decision
makingwhatthefruitflyistogeneticists.Choicesbetweensuchgamblesprovideasimple
model that shares important features with the more complex decisions that researchers
actuallyaimtounderstand.Gamblesrepresentthefactthattheconsequencesofchoices
arenevercertain.Evenostensiblysureoutcomesareuncertain:whenyousignthecontract
tobuyanapartment,youdonotknowthepriceatwhichyoulatermayhavetosellit,nor
doyouknowthatyourneighborssonwillsoontakeupthetuba.Everysignificantchoice
wemakeinlifecomeswithsomeuncertainty—whichiswhystudentsofdecisionmaking
hopethatsomeofthelessonslearnedinthemodelsituationwillbeapplicabletomore
interestingeverydayproblems.Butofcoursethemainreasonthatdecisiontheoristsstudy
simplegamblesisthatthisiswhatotherdecisiontheoristsdo.
The field had a theory, expected utility theory, which was the foundation of the
rational-agentmodelandistothisdaythemostimportanttheoryinthesocialsciences.
Expected utility theory was not intended as a psychological model; it was a logic of
choice,basedonelementaryrules(axioms)ofrationality.Considerthisexample:
Ifyoupreferanappletoabanana,
then
youalsoprefera10%chancetowinanappletoa10%chancetowinabanana.
The apple and the banana stand for any objects of choice (including gambles), and the
10%chancestandsforanyprobability.ThemathematicianJohnvonNeumann,oneofthe
giantintellectualfiguresofthetwentiethcentury,andtheeconomistOskarMorgenstern
had derived their theory of rational choice between gambles from a few axioms.
Economistsadoptedexpectedutilitytheoryinadualrole:asalogicthatprescribeshow
decisionsshouldbemade,andasadescriptionofhowEconsmakechoices.AmosandI
werepsychologists, however, andwe setout tounderstand how Humansactually make
riskychoices,withoutassuminganythingabouttheirrationality.
We maintained our routine of spending many hours each day in conversation,
sometimesinouroffices,sometimesatrestaurants,oftenonlongwalksthroughthequiet
streetsofbeautifulJerusalem.Aswehaddonewhenwestudiedjudgment,weengagedin
a careful examination of our own intuitive preferences. We spent our time inventing
simpledecisionproblemsandaskingourselveshowwewouldchoose.Forexample:
Whichdoyouprefer?
A.Tossacoin.Ifitcomesupheadsyouwin$100,andifitcomesuptailsyouwin
nothing.
B.Get$46forsure.
WewerenottryingtofigureoutthemosBineithWetrationaloradvantageouschoice;we
wanted to find the intuitive choice, the one that appeared immediately tempting. We
almostalwaysselectedthesameoption.Inthisexample,bothofuswouldhavepickedthe
surething,andyouprobablywoulddothesame.Whenweconfidentlyagreedonachoice,
webelieved—almostalwayscorrectly,asitturnedout—thatmostpeoplewouldshareour
preference,andwemovedonasifwehadsolidevidence.Weknew,ofcourse,thatwe
wouldneedtoverifyourhuncheslater,butbyplayingtherolesofbothexperimentersand
subjectswewereabletomovequickly.
Fiveyearsafterwebeganourstudyofgambles,wefinallycompletedanessaythat
wetitled“ProspectTheory:AnAnalysisofDecisionunderRisk.”Ourtheorywasclosely
modeledonutilitytheorybutdepartedfromitinfundamentalways.Mostimportant,our
model was purely descriptive, and its goal was to document and explain systematic
violations of the axioms of rationality in choices between gambles. We submitted our
essay to Econometrica, a journal that publishes significant theoretical articles in
economicsandindecisiontheory.Thechoiceofvenueturnedouttobeimportant;ifwe
hadpublishedtheidenticalpaperinapsychologicaljournal,itwouldlikelyhavehadlittle
impact on economics. However, our decision was not guided by a wish to influence
economics;Econometricajusthappenedtobewherethebestpapersondecisionmaking
hadbeenpublishedinthepast,andwewereaspiringtobeinthatcompany.Inthischoice
asinmanyothers,wewerelucky.Prospecttheoryturnedouttobethemostsignificant
workweeverdid,andourarticleisamongthemostoftencitedinthesocialsciences.Two
yearslater,wepublishedinScienceanaccountofframingeffects:thelargechangesof
preferencesthataresometimescausedbyinconsequentialvariationsinthewordingofa
choiceproblem.
During the first five years we spent looking at how people make decisions, we
establishedadozenfactsaboutchoicesbetweenriskyoptions.Severalofthesefactswere
inflatcontradictiontoexpectedutilitytheory.Somehadbeenobservedbefore,afewwere
new. Thenwe constructeda theorythat modifiedexpected utilitytheory justenough to
explainourcollectionofobservations.Thatwasprospecttheory.
Our approach to the problem was in the spirit of a field of psychology called
psychophysics, which was founded and named by the German psychologist and mystic
GustavFechner(1801–1887).Fechnerwasobsessedwiththerelationofmindandmatter.
Ononesidethereisaphysicalquantitythatcanvary,suchastheenergyofalight,the
frequency of a tone, or an amount of money. On the other side there is a subjective
experienceofbrightness,pitch,orvalue.Mysteriously,variationsofthephysicalquantity
causevariationsintheintensityorqualityofthesubjectiveexperience.Fechnersproject
wastofindthepsychophysicallawsthatrelatethesubjectivequantityintheobservers
mind to the objective quantity in the material world. He proposed that for many
dimensions,thefunctionislogarithmic—whichsimplymeansthatanincreaseofstimulus
intensitybyagivenfactor(say,times1.5ortimes10)alwaysyieldsthesameincrement
on the psychological scale. If raising the energy of the sound from 10 to 100 units of
physical energy increases psychological intensity by 4 units, then a further increase of
stimulusintensityfrom100to1,000willalsoincreasepsychologicalintensityby4units.
Bernoulli’sError
As Fechner well knew, he was not the first to look for a function that rel
Binepitze=“4”>utility)andtheactualamountofmoney.Hearguedthatagiftof10ducats
has the same utility to someone who already has 100 ducats as a gift of 20 ducats to
someonewhosecurrentwealthis200ducats.Bernoulliwasright,ofcourse:wenormally
speak of changes of income in terms of percentages, as when we say “she got a 30%
raise.”Theideaisthata30%raisemayevokeafairlysimilarpsychologicalresponsefor
therichandforthepoor,whichanincreaseof$100willnotdo.AsinFechnerslaw,the
psychological response to a change of wealth is inversely proportional to the initial
amountofwealth,leadingtotheconclusionthatutilityisalogarithmicfunctionofwealth.
Ifthisfunctionisaccurate,thesamepsychologicaldistanceseparates$100,000from$1
million,and$10millionfrom$100million.
Bernoulli drew on his psychological insight into the utility of wealth to propose a
radically new approach to the evaluation of gambles, an important topic for the
mathematiciansofhisday.PriortoBernoulli,mathematicianshadassumedthatgambles
areassessedbytheirexpectedvalue:aweightedaverageofthepossibleoutcomes,where
eachoutcomeisweightedbyitsprobability.Forexample,theexpectedvalueof:
80%chancetowin$100and20%chancetowin$10is$82(0.8×100+0.2×10).
Nowaskyourselfthisquestion:Whichwouldyouprefertoreceiveasagift,thisgamble
or $80 for sure? Almost everyone prefers the sure thing. If people valued uncertain
prospectsbytheirexpectedvalue,theywouldpreferthegamble,because$82ismorethan
$80.Bernoullipointedoutthatpeopledonotinfactevaluategamblesinthisway.
Bernoulliobservedthatmostpeopledislikerisk(thechanceofreceivingthelowest
possibleoutcome),andiftheyareofferedachoicebetweenagambleandanamountequal
toitsexpectedvaluetheywillpickthesurething.Infactarisk-aversedecisionmakerwill
chooseasurethingthatislessthanexpectedvalue,ineffectpayingapremiumtoavoid
theuncertainty.OnehundredyearsbeforeFechner,Bernoulliinventedpsychophysicsto
explainthisaversiontorisk.Hisideawasstraightforward:people’schoicesarebasednot
on dollar values but on the psychological values of outcomes, their utilities. The
psychological value of a gamble is therefore not the weighted average of its possible
dollaroutcomes;itistheaverageoftheutilitiesoftheseoutcomes,eachweightedbyits
probability.
Table3showsaversionoftheutilityfunctionthatBernoullicalculated;itpresentsthe
utilityofdifferentlevelsofwealth,from1millionto10million.Youcanseethatadding1
million to a wealth of 1 million yields an increment of 20 utility points, but adding 1
million to a wealth of 9 million adds only 4 points. Bernoulli proposed that the
diminishingmarginalvalueofwealth(inthemodernjargon)iswhatexplainsriskaversion
—the common preference that people generally show for a sure thing over a favorable
gambleofequalorslightlyhigherexpectedvalue.Considerthischoice:
Table3
Theexpectedvalueofthegambleandthe“surething”areequalinducats(4million),but
the psychological utilities of the two options are different, because of the diminishing
utilityofwealth:theincrementofutilityfrom1millionto4millionis50units,butan
equalincrement,from4to7million,increasestheutilityofwealthbyonly24units.The
utilityof thegambleis94/2=47(theutilityofitstwooutcomes,each weightedbyits
probability of 1/2). The utility of 4 million is 60. Because 60 is more than 47, an
individualwiththisutilityfunctionwillpreferthesurething.Bernoulli’sinsightwasthata
decisionmakerwithdiminishingmarginalutilityforwealthwillberiskaverse.
Bernoulli’s essay is a marvel of concise brilliance. He applied his new concept of
expectedutility(whichhecalled“moralexpectation”)tocomputehowmuchamerchant
inSt.PetersburgwouldbewillingtopaytoinsureashipmentofspicefromAmsterdamif
“heiswellawareofthefactthatatthistimeofyearofonehundredshipswhichsailfrom
AmsterdamtoPetersburg,fiveareusuallylost.”Hisutilityfunctionexplainedwhypoor
peoplebuyinsuranceandwhyricherpeoplesellittothem.Asyoucanseeinthetable,the
lossof1millioncausesalossof4pointsofutility(from100to96)tosomeonewhohas
10millionandamuchlargerlossof18points(from48to30)tosomeonewhostartsoff
with 3 million. The poorer man will happily pay a premium to transfer the risk to the
richer one, which is what insurance is about. Bernoulli also offered a solution to the
famous “St. Petersburg paradox,” in which people who are offered a gamble that has
infinite expected value (in ducats) are willing to spend only a few ducats for it. Most
impressive,hisanalysisofriskattitudesintermsofpreferencesforwealthhasstoodthe
testoftime:itisstillcurrentineconomicanalysisalmost300yearslater.
Thelongevityofthetheoryisallthemoreremarkablebecauseitisseriouslyflawed.
Theerrorsofatheoryarerarelyfoundinwhatitassertsexplicitly;theyhideinwhatit
ignoresortacitlyassumes.Foranexample,takethefollowingscenarios:
TodayJackandJilleachhaveawealthof5million.
Yesterday,Jackhad1millionandJillhad9million.
Aretheyequallyhappy?(Dotheyhavethesameutility?)
Bernoulli’stheoryassumesthattheutilityoftheirwealthiswhatmakespeoplemoreor
lesshappy.JackandJillhavethesamewealth,andthetheorythereforeassertsthatthey
shouldbeequallyhappy,butyoudonotneedadegreeinpsychologytoknowthattoday
Jack is elated and Jill despondent. Indeed, we know that Jack would be a great deal
happierthanJillevenifhehadonly2milliontodaywhileshehas5.SoBernoulli’stheory
mustbewrong.
The happiness that Jack and Jill experience is determined by the recent change in
theirwealth,relativetothedifferentstatesofwealththatdefinetheirreferencepoints(1
millionforJack,9millionforJill).Thisreferencedependenceisubiquitousinsensation
andperception.Thesamesoundwillbeexperiencedasveryloudorquitefaint,depending
onwhetheritwasprecededbyawhisperorbyaroar.Topredictthesubjectiveexperience
ofloudness,itisnotenoughtoknowitsabsoluteenergy;youalsoneedtoBineli&rquite
faknowthereferencesoundtowhichitisautomaticallycompared.Similarly,youneedto
knowaboutthebackgroundbeforeyoucanpredictwhetheragraypatchonapagewill
appeardarkorlight.Andyouneedtoknowthereferencebeforeyoucanpredicttheutility
ofanamountofwealth.
ForanotherexampleofwhatBernoulli’stheorymisses,considerAnthonyandBetty:
Anthony’scurrentwealthis1million.
Betty’scurrentwealthis4million.
Theyarebothofferedachoicebetweenagambleandasurething.
Thegamble:equalchancestoendupowning1millionor4million
OR
Thesurething:own2millionforsure
In Bernoulli’s account, Anthony and Betty face the same choice: their expected wealth
will be 2.5 million if they take the gamble and 2 million if they prefer the sure-thing
option.BernoulliwouldthereforeexpectAnthonyandBettytomakethesamechoice,but
thispredictionisincorrect.Hereagain,thetheoryfailsbecauseitdoesnotallowforthe
differentreferencepoints from which Anthony and Betty consider their options. If you
imagineyourselfinAnthony’sandBetty’sshoes,youwillquicklyseethatcurrentwealth
mattersagreatdeal.Hereishowtheymaythink:
Anthony(whocurrentlyowns1million):“IfIchoosethesurething,mywealthwill
doublewithcertainty.Thisisveryattractive.Alternatively,Icantakeagamblewith
equalchancestoquadruplemywealthortogainnothing.”
Betty(whocurrentlyowns4million):“IfIchoosethesurething,Ilosehalfofmy
wealthwithcertainty,whichisawful.Alternatively,Icantakeagamblewithequal
chancestolosethree-quartersofmywealthortolosenothing.”
YoucansensethatAnthonyandBettyarelikelytomakedifferentchoicesbecausethe
sure-thingoptionofowning2millionmakesAnthonyhappyandmakesBettymiserable.
Note also how the sure outcome differs from the worst outcome of the gamble: for
Anthony,itisthedifferencebetweendoublinghiswealthandgainingnothing;forBetty,it
isthe difference betweenlosing halfher wealthand losing three-quartersof it.Bettyis
muchmorelikelytotakeherchances,asothersdowhenfacedwithverybadoptions.AsI
have told their story, neither Anthony nor Betty thinks in terms of states of wealth:
Anthony thinks of gains and Betty thinks of losses. The psychological outcomes they
assessareentirelydifferent,althoughthepossiblestatesofwealththeyfacearethesame.
BecauseBernoulli’smodellackstheideaofareferencepoint,expectedutilitytheory
doesnotrepresenttheobviousfactthattheoutcomethatisgoodforAnthonyisbadfor
Betty.HismodelcouldexplainAnthony’sriskaversion,butitcannotexplainBetty’srisk-
seekingpreferenceforthegamble,abehaviorthatisoftenobservedinentrepreneursand
ingeneralswhenalltheiroptionsarebad.
All this is rather obvious, isn’t it? One could easily imagine Bernoulli himself
constructing similar examples and developing a more complex theory to accommodate
them; for some reason, he did not. One could also imagine colleagues of his time
disagreeingwithhim,orlaterscholarsobjectingastheyreadhisessay;forsomereason,
theydidnoteither.
Themysteryishowaconceptionoftheutilityofoutcomesthatisvulnerabletosuch
obviouscounterexamplessurvivedforsolong.Icanexplainitonlybyaweaknessofthe
scholarly mind that I have often observed in myself. I call it theory-induced blindness:
onceyouhaveacceptedatheoryanduseditasatoolinyourthinking,itisextraordinarily
difficulttonoticeitsflaws.Ifyoucomeuponanobservationthatdoesnotseemtofitthe
model,youassumethattheremustbeaperfectlygoodexplanationthatyouaresomehow
missing.Yougivethetheorythebenefitofthedoubt,trustingthecommunityofexperts
whohaveacceptedit.Manyscholarshavesurelythoughtatonetimeoranotherofstories
suchasthoseofAnthonyandBetty,orJackandJill,andcasuallynotedthatthesestories
didnot jibe withutilitytheory.But theydidnot pursuethe idea tothe point ofsaying,
“This theory is seriously wrong because it ignores the fact that utility depends on the
historyofone’swealth,notonlyonpresentwealth.”AsthepsychologistDanielGilbert
observed,disbelievingishardwork,andSystem2iseasilytired.
SpeakingofBernoulli’sErrors
“Hewasveryhappywitha$20,000bonusthreeyearsago,buthissalaryhasgoneup
by20%since,sohewillneedahigherbonustogetthesameutility.”
“Bothcandidatesare willingtoacceptthesalarywe’reoffering,buttheywon’tbe
equally satisfied because their reference points are different. She currently has a
muchhighersalary.”
“She’ssuinghimforalimony.Shewouldactuallyliketosettle,buthepreferstogoto
court.That’snotsurprising—shecanonlygain,soshe’sriskaverse.He,ontheother
hand,facesoptionsthatareallbad,sohe’drathertaketherisk.”
P
ProspectTheory
AmosandIstumbledonthecentralflawinBernoulli’stheorybyaluckycombinationof
skill and ignorance. At Amos’s suggestion, I read a chapter in his book that described
experimentsinwhichdistinguishedscholarshadmeasuredtheutilityofmoneybyasking
peopletomakechoicesaboutgamblesinwhichtheparticipantcouldwinorloseafew
pennies. The experimenters were measuring the utility of wealth, by modifying wealth
withinarangeoflessthanadollar.Thisraisedquestions.Isitplausibletoassumethat
peopleevaluatethegamblesbytinydifferencesinwealth?Howcouldonehopetolearn
aboutthepsychophysicsofwealthbystudyingreactionstogainsandlossesofpennies?
Recent developments in psychophysical theory suggested that if you want to study the
subjectivevalueofwealth,youshouClth”ldaskdirectquestionsaboutwealth,notabout
changesofwealth.Ididnotknowenoughaboututilitytheorytobeblindedbyrespectfor
it,andIwaspuzzled.
WhenAmosandImetthenextday,Ireportedmydifficultiesasavaguethought,not
asadiscovery.Ifullyexpectedhimtosetmestraightandtoexplainwhytheexperiment
thathadpuzzledmemadesenseafterall,buthedidnothingofthekind—therelevanceof
the modern psychophysics was immediately obvious to him. He remembered that the
economist Harry Markowitz, who would later earn the Nobel Prize for his work on
finance,hadproposedatheoryinwhichutilitieswereattachedtochangesofwealthrather
thantostatesofwealth.Markowitz’sideahadbeenaroundforaquarterofacenturyand
hadnotattractedmuchattention,butwequicklyconcludedthatthiswasthewaytogo,
and that the theory we were planning to develop would define outcomes as gains and
losses, not as states of wealth. Knowledge of perception and ignorance about decision
theorybothcontributedtoalargestepforwardinourresearch.
We soon knew that we had overcome a serious case of theory-induced blindness,
becausetheideawehadrejectednowseemednotonlyfalsebutabsurd.Wewereamused
to realize that we were unable to assess our current wealth withintens of thousands of
dollars. The idea of deriving attitudes to small changes from the utility of wealth now
seemedindefensible.Youknowyouhave made atheoreticaladvancewhenyoucan no
longerreconstructwhyyoufailedforsolongtoseetheobvious.Still,ittookusyearsto
exploretheimplicationsofthinkingaboutoutcomesasgainsandlosses.
In utility theory, the utility of a gain is assessed by comparing the utilities of two
statesofwealth.Forexample,theutilityofgettinganextra$500whenyourwealthis$1
millionis the differencebetween theutility of $1,000,500 and theutility of$1 million.
And if you own the larger amount, the disutility of losing $500 is again the difference
betweentheutilitiesofthetwostatesofwealth.Inthistheory,theutilitiesofgainsand
lossesareallowedtodifferonlyintheirsign(+or–).Thereisnowaytorepresentthefact
that the disutility of losing $500 could be greater than the utility of winning the same
amount—though of course it is. As might be expected in a situation of theory-induced
blindness, possible differences between gains and losses were neither expected nor
studied.Thedistinctionbetweengainsandlosseswasassumednottomatter,sotherewas
nopointinexaminingit.
AmosandIdidnotseeimmediatelythatourfocusonchangesofwealthopenedthe
waytoanexplorationofanewtopic.Weweremainlyconcernedwithdifferencesbetween
gambles with high or low probability of winning. One day, Amos made the casual
suggestion,“Howaboutlosses?”andwequicklyfoundthatourfamiliarriskaversionwas
replacedbyriskseekingwhenweswitchedourfocus.Considerthesetwoproblems:
Problem1:Whichdoyouchoose?
Get$900forsureOR90%chancetoget$1,000
Problem2:Whichdoyouchoose?
Lose$900forsureOR90%chancetolose$1,000
You were probably risk averse in problem 1, as is the great majority of people. The
subjectivevalueofagainof$900iscertainlymorethan90%ofthevalueofagaBlth”it
ueofagin of$1,000.Therisk-aversechoice in thisproblemwouldnot have surprised
Bernoulli.
Nowexamineyourpreferenceinproblem2.Ifyouarelikemostotherpeople,you
chose the gamble in this question. The explanation for this risk-seeking choice is the
mirror image of the explanation of risk aversion in problem 1: the (negative) value of
losing$900ismuchmorethan90%ofthe(negative)valueoflosing$1,000.Thesureloss
isveryaversive,andthisdrivesyoutotaketherisk.Later,wewillseethattheevaluations
oftheprobabilities(90%versus100%)alsocontributestobothriskaversioninproblem1
andthepreferenceforthegambleinproblem2.
Wewerenotthefirsttonoticethatpeoplebecomeriskseekingwhenalltheiroptions
arebad,buttheory-inducedblindnesshadprevailed.Becausethedominanttheorydidnot
provideaplausiblewaytoaccommodatedifferentattitudestoriskforgainsandlosses,the
fact that the attitudes differed had to be ignored. In contrast, our decision to view
outcomes as gains and losses led us to focus precisely on this discrepancy. The
observationofcontrastingattitudestoriskwithfavorableandunfavorableprospectssoon
yielded a significant advance: we found a way to demonstrate the central error in
Bernoulli’smodelofchoice.Havealook:
Problem3:Inadditiontowhateveryouown,youhavebeengiven$1,000.
Youarenowaskedtochooseoneoftheseoptions:
50%chancetowin$1,000ORget$500forsure
Problem4:Inadditiontowhateveryouown,youhavebeengiven$2,000.
Youarenowaskedtochooseoneoftheseoptions:
50%chancetolose$1,000ORlose$500forsure
You can easily confirm that in terms of final states of wealth—all that matters for
Bernoulli’s theory—problems 3 and 4 are identical. In both cases you have a choice
between the same two options: you can have the certainty of being richer than you
currentlyareby$1,500,oracceptagambleinwhichyouhaveequalchancestobericher
by$1,000orby$2,000.InBernoulli’stheory,therefore,thetwoproblemsshouldelicit
similarpreferences.Checkyourintuitions,andyouwillprobablyguesswhatotherpeople
did.
Inthefirstchoice,alargemajorityofrespondentspreferredthesurething.
Inthesecondchoice,alargemajoritypreferredthegamble.
The finding of different preferences in problems 3 and 4 was a decisive
counterexample to the key idea of Bernoulli’s theory. If the utility of wealth is all that
matters, then transparently equivalent statements of the same problem should yield
identicalchoices.Thecomparisonoftheproblemshighlightstheall-importantroleofthe
referencepointfromwhichtheoptionsareevaluated.Thereferencepointishigherthan
currentwealthby$1,000inproblem3,by$2,000inproblem4.Beingricherby$1,500is
thereforeagainof$500inproblem3andalossinproblem4.Obviously,otherexamples
of the same kind are easy to generate. The story of Anthony and Betty had a similar
structure.
Howmuchattentiondidyoupaytothegiftof$1,000or$2,000thatyouwere“given”
priortomakingyourchoice?Ifyouarelikemostpeople,youbarelynoticedit.Indeed,
therewasnoreasonforyoutoattendtoit,becausethegiftisincludedinthereference
point, and reference points are generally ignored. You know something about your
preferencesthatutilitytheoristsdonot—thatyourattitudestoriskwouldnotbedifferent
ifyournetworthwerehigherorlowerbyafewthousanddollars(unlessyouareabjectly
poor).Andyoualsoknowthatyourattitudestogainsandlossesarenotderivedfromyour
evaluationofyourwealth.Thereasonyouliketheideaofgaining$100anddislikethe
ideaoflosing$100isnotthattheseamountschangeyourwealth.Youjustlikewinning
anddislikelosing—andyoualmostcertainlydislikelosingmorethanyoulikewinning.
The four problems highlight the weakness of Bernoulli’s model. His theory is too
simpleand lacksa movingpart. The missing variable is the referencepoint, the earlier
staterelativetowhichgainsandlossesareevaluated.InBernoulli’stheoryyouneedto
knowonlythestateofwealthtodetermineitsutility,butinprospecttheoryyoualsoneed
toknowthereferencestate.Prospecttheoryisthereforemorecomplexthanutilitytheory.
Insciencecomplexityisconsideredacost,whichmustbejustifiedbyasufficientlyrich
setofnewand(preferably)interestingpredictionsoffactsthattheexistingtheorycannot
explain.Thiswasthechallengewehadtomeet.
AlthoughAmosandIwerenotworkingwiththetwo-systemsmodelofthemind,it’s
clearnowthattherearethreecognitivefeaturesattheheartofprospecttheory.Theyplay
an essential role in the evaluation of financial outcomes and are common to many
automatic processes of perception, judgment, and emotion. They should be seen as
operatingcharacteristicsofSystem1.
Evaluationisrelativetoaneutralreferencepoint,whichissometimesreferredtoas
an “adaptation level.” You can easily set up a compelling demonstration of this
principle.Placethreebowlsofwaterinfrontofyou.Puticewaterintotheleft-hand
bowlandwarmwaterintotheright-handbowl.Thewaterinthemiddlebowlshould
beatroomtemperature.Immerseyourhandsinthecoldandwarmwaterforabouta
minute,thendipbothinthemiddlebowl.Youwillexperiencethesametemperature
asheatinonehandandcoldintheother.Forfinancialoutcomes,theusualreference
pointisthestatusquo,butitcanalsobetheoutcomethatyouexpect,orperhapsthe
outcome to which you feel entitled, for example, the raise or bonus that your
colleagues receive. Outcomes that are better than the reference points are gains.
Belowthereferencepointtheyarelosses.
A principle of diminishing sensitivity applies to both sensory dimensions and the
evaluationofchangesofwealth.Turningonaweaklighthasalargeeffectinadark
room. The same increment of light may be undetectable in a brightly illuminated
room.Similarly,thesubjectivedifferencebetween$900and$1,000ismuchsmaller
thanthedifferencebetween$100and$200.
The third principle is loss aversion. When directly compared or weighted against
each other, losses loom larger than gains. This asymmetry between the power of
positive and negative expectations or experiences has an evolutionary history.
Organismsthattreatthreatsasmoreurgentthanopportunitieshaveabetterchanceto
surviveandreproduce.
The three principles that govern the value of outcomes are illustrated by figure 1
Blth”wagure0.Ifprospecttheoryhadaflag,thisimagewouldbedrawnonit.Thegraph
showsthe psychological value of gainsand losses, which are the“carriers” of value in
prospect theory (unlike Bernoulli’s model, in which states of wealth are the carriers of
value).Thegraphhastwodistinctparts,totherightandtotheleftofaneutralreference
point.AsalientfeatureisthatitisS-shaped,whichrepresentsdiminishingsensitivityfor
bothgainsandlosses.Finally,thetwocurvesoftheSarenotsymmetrical.Theslopeof
thefunctionchangesabruptlyatthereferencepoint:theresponsetolossesisstrongerthan
theresponsetocorrespondinggains.Thisislossaversion.
Figure10
LossAversion
Manyoftheoptionswefaceinlifeare“mixed”:thereisariskoflossandanopportunity
for gain, and we must decide whether to accept the gamble or reject it. Investors who
evaluateastart-up,lawyerswhowonderwhethertofilealawsuit,wartimegeneralswho
consideranoffensive,andpoliticianswhomustdecidewhethertorunforofficeallface
the possibilities of victory or defeat. For an elementary example of a mixed prospect,
examineyourreactiontothenextquestion.
Problem5:Youareofferedagambleonthetossofacoin.
Ifthecoinshowstails,youlose$100.
Ifthecoinshowsheads,youwin$150.
Isthisgambleattractive?Wouldyouacceptit?
Tomakethischoice,youmustbalancethepsychologicalbenefitofgetting$150against
thepsychologicalcostoflosing$100.Howdoyoufeelaboutit?Althoughtheexpected
valueofthegambleisobviouslypositive,becauseyoustandtogainmorethanyoucan
lose,you probablydislikeit—mostpeopledo.Therejectionofthisgambleisanactof
System2,butthecriticalinputsareemotionalresponsesthataregeneratedbySystem1.
Formostpeople,thefearoflosing$100ismoreintensethanthehopeofgaining$150.
Weconcludedfrommanysuchobservationsthat“lossesloomlargerthangains”andthat
peoplearelossaverse.
Youcanmeasuretheextentofyouraversiontolossesbyaskingyourselfaquestion:
WhatisthesmallestgainthatIneedtobalanceanequalchancetolose$100?Formany
peopletheanswerisabout$200,twiceasmuchastheloss.The“lossaversionratio”has
beenestimatedinseveralexperimentsandisusuallyintherangeof1.5to2.5.Thisisan
average,ofcourse;somepeoplearemuchmorelossaversethanothers.Professionalrisk
takersinthefinancialmarketsaremoretolerantoflosses,probablybecausetheydonot
respond emotionally to every fluctuation. When participants in an experiment were
instructed to “think like a trader,” they became less loss averse and their emotional
reactiontolosses(measuredbyaphysiologicalindexofemotionalarousal)wassharply
reduced.
In order to examine your loss aversion ratio for different stakes, consider the
following questions. Ignore any social considerations, do not try to appear either bold
Blth”vioherorcautious,andfocusonlyonthesubjectiveimpactofthepossiblelossand
theoffsettinggain.
Considera50–50gambleinwhichyoucanlose$10.Whatisthesmallestgainthat
makesthegambleattractive?Ifyousay$10,thenyouareindifferenttorisk.Ifyou
giveanumberlessthan$10,youseekrisk.Ifyouranswerisabove$10,youareloss
averse.
Whataboutapossiblelossof$500onacointoss?Whatpossiblegaindoyourequire
tooffsetit?
Whataboutalossof$2,000?
Asyoucarriedoutthis exercise, youprobablyfoundthatyour loss aversioncoefficient
tendstoincreasewhenthestakesrise,butnotdramatically.Allbetsareoff,ofcourse,if
thepossiblelossispotentiallyruinous,orifyourlifestyleisthreatened.Thelossaversion
coefficientisverylargeinsuchcasesandmayevenbeinfinite—therearerisksthatyou
willnotaccept,regardlessofhowmanymillionsyoumightstandtowinifyouarelucky.
Anotherlook atfigure 10 mayhelp preventa commonconfusion. In thischapter I
havemadetwoclaims,whichsomereadersmayviewascontradictory:
Inmixed gambles, where both again and aloss are possible, loss aversioncauses
extremelyrisk-aversechoices.
Inbadchoices,whereasurelossiscomparedtoalargerlossthatismerelyprobable,
diminishingsensitivitycausesriskseeking.
Thereisnocontradiction.Inthemixedcase,thepossiblelossloomstwiceaslargeasthe
possiblegain,asyoucanseebycomparingtheslopesofthevaluefunctionforlossesand
gains.Inthebadcase,thebendingofthevaluecurve(diminishingsensitivity)causesrisk
seeking.Thepainoflosing$900ismorethan90%ofthepainoflosing$1,000.Thesetwo
insightsaretheessenceofprospecttheory.
Figure10showsanabruptchangeintheslopeofthevaluefunctionwheregainsturninto
losses, because there is considerable loss aversion even when the amount at risk is
minusculerelativetoyour wealth.Isitplausible that attitudestostates of wealthcould
explain the extreme aversion to small risks? It is a striking example of theory-induced
blindnessthatthisobviousflawinBernoulli’stheoryfailedtoattractscholarlynoticefor
more than 250 years. In 2000, the behavioral economist Matthew Rabin finally proved
mathematicallythatattemptstoexplainlossaversionbytheutilityofwealthareabsurd
anddoomedtofail,andhisproofattractedattention.Rabin’stheoremshowsthatanyone
whorejectsafavorablegamblewithsmallstakesismathematicallycommittedtoafoolish
levelofriskaversionforsomelargergamble.Forexample,henotesthatmostHumans
rejectthefollowinggamble:
50%chancetolose$100and50%chancetowin$200
Hethenshowsthataccordingtoutilitytheory,anindividualwhorejectsthatgamblewill
alsoturndownthefollowinggamble:
50%chancetolose$200and50%chancetowin$20,000
But of course no one in his or her right mind will reject this gamble! In an exuberant
articletheywroteaboBlth”ins>
Perhapscarriedawaybytheirenthusiasm,theyconcludedtheirarticlebyrecallingthe
famous Monty Python sketch in which a frustrated customer attempts to return a dead
parrottoapetstore.Thecustomerusesalongseriesofphrasestodescribethestateofthe
bird,culminatingin“thisisanex-parrot.”RabinandThalerwentontosaythat“itistime
foreconomiststorecognizethatexpectedutilityisanex-hypothesis.”Manyeconomists
saw this flippant statement as little short of blasphemy. However, the theory-induced
blindnessofacceptingtheutilityofwealthasanexplanationofattitudestosmalllossesis
alegitimatetargetforhumorouscomment.
BlindSpotspfProspectTheory
SofarinthispartofthebookIhaveextolledthevirtuesofprospecttheoryandcriticized
therationalmodelandexpectedutilitytheory.Itistimeforsomebalance.
Most graduate students in economics have heard about prospect theory and loss
aversion,butyouareunlikelytofindthesetermsintheindexofanintroductorytextin
economics. I am sometimes pained by this omission, but in fact it is quite reasonable,
becauseofthecentralroleofrationalityinbasiceconomictheory.Thestandardconcepts
and results that undergraduates are taught are most easily explained by assuming that
Econsdonotmakefoolishmistakes.Thisassumptionistrulynecessary,anditwouldbe
undermined by introducing the Humans of prospect theory, whose evaluations of
outcomesareunreasonablyshort-sighted.
There are good reasons for keeping prospect theory out of introductory texts. The
basicconceptsofeconomicsareessentialintellectualtools,whicharenoteasytograsp
evenwithsimplifiedandunrealisticassumptionsaboutthenatureoftheeconomicagents
who interact in markets. Raising questions about these assumptions even as they are
introducedwouldbeconfusing,andperhapsdemoralizing.Itisreasonabletoputpriority
onhelpingstudentsacquirethe basic tools ofthediscipline.Furthermore,thefailureof
rationality that is built into prospect theory is often irrelevant to the predictions of
economictheory,whichworkoutwithgreatprecisioninsomesituationsandprovidegood
approximations in many others. In some contexts, however, the difference becomes
significant: the Humans described by prospect theory are guided by the immediate
emotional impact of gains and losses, not by long-term prospects of wealth and global
utility.
I emphasized theory-induced blindness in my discussion of flaws in Bernoulli’s
model that remained unquestioned for more than two centuries. But of course theory-
inducedblindnessisnotrestrictedtoexpectedutilitytheory.Prospecttheoryhasflawsof
itsown,andtheory-inducedblindnesstotheseflawshascontributedtoitsacceptanceas
themainalternativetoutilitytheory.
Considertheassumptionofprospecttheory,thatthereferencepoint,usuallythestatus
quo,hasavalueofzero.Thisassumptionseemsreasonable,butitleadstosomeabsurd
consequences.Haveagoodlookatthefollowingprospects.Whatwoulditbeliketoown
them?
A.onechanceinamilliontowin$1million
B.90%chancetowin$12and10%chancetowinnothing
C.90%chancetowin$1millionand10%chancetowinnothing
Winningnothingisapossibleoutcomeinallthreegambles,andprospecttheoryassigns
thesamevaluetothatoutcomeinthethreecases.Winningnothingisthereferencepoint
anditsvalueiszero.Dothesestatementscorrespondtoyourexperience?Ofcoursenot.
Winning nothing is a nonevent in the first two cases, and assigning it a value of zero
makes good sense. In contrast, failing to win in the third scenario is intensely
disappointing. Like a salary increase that has been promised informally, the high
probabilityofwinningthelargesumsetsupatentativenewreferencepoint.Relativeto
your expectations, winning nothing will be experienced as a large loss. Prospect theory
cannotcopewiththisfact,becauseitdoesnotallowthevalueofanoutcome(inthiscase,
winning nothing) to change when it is highly unlikely, or when the alternative is very
valuable. In simple words, prospect theory cannot deal with disappointment.
Disappointmentandtheanticipationofdisappointmentarereal,however,andthefailure
to acknowledge them is as obvious a flow as the counterexamples that I invoked to
criticizeBernoulli’stheory.
Prospecttheoryandutilitytheoryalsofailtoallowforregret.Thetwotheoriesshare
the assumption that available options in a choice are evaluated separately and
independently,andthattheoptionwiththehighestvalueisselected.Thisassumptionis
certainlywrong,asthefollowingexampleshows.
Problem6:Choosebetween90%chancetowin$1millionOR$50withcertainty.
Problem 7: Choose between 90% chance to win $1 million OR $150,000 with
certainty.
Comparetheanticipatedpainofchoosingthegambleandnotwinninginthetwocases.
Failing to win is a disappointment in both, but the potential pain is compounded in
problem7byknowingthatifyouchoosethegambleandloseyouwillregretthe“greedy”
decision you made by spurning a sure gift of $150,000. In regret, the experience of an
outcomedependsonanoptionyoucouldhaveadoptedbutdidnot.
Severaleconomistsandpsychologistshaveproposedmodelsofdecisionmakingthat
arebasedontheemotionsofregretanddisappointment.Itisfairtosaythatthesemodels
havehadlessinfluencethanprospecttheory,andthereasonisinstructive.Theemotions
of regret and disappointment are real, and decision makers surely anticipate these
emotions when making their choices. The problem is that regret theories make few
striking predictions that would distinguish them from prospect theory, which has the
advantageofbeingsimpler.Thecomplexityofprospecttheorywasmoreacceptableinthe
competitionwithexpectedutilitytheorybecauseitdidpredictobservationsthatexpected
utilitytheorycouldnotexplain.
Richer and more realistic assumptions do not suffice to make a theory successful.
Scientistsusetheoriesasabagofworkingtools,andtheywillnottakeontheburdenofa
heavierbagunlessthenewtoolsareveryuseful.Prospecttheorywasacceptedbymany
scholarsnotbecauseitis“true”butbecausetheconceptsthatitaddedtoutilitytheory,
notablythereferencepoint and loss aversion,wereworththetrouble;theyyieldednew
predictionsthatturnedouttobetrue.Wewerelucky.
SpeakingofProspectTheory
“He suffers from extreme loss aversion, which makes him turn down very favorable
opportunities.”
“Consideringhervastwealth,heremotionalresponsetotrivialgainsandlossesmakesno
sense.”
“Heweighslossesabouttwiceasmuchasgains,whichisnormal.”
P
TheEndowmentEffect
Youhaveprobablyseenfigure11oraclosecousinofitevenifyouneverhadaclassin
economics.Thegraphdisplaysanindividual’s“indifferencemap”fortwogoods.
Figure11
Studentslearninintroductoryeconomicsclassesthateachpointonthemapspecifies
aparticularcombinationofincomeandvacationdays.Each“indifferencecurve”connects
thecombinationsofthetwogoodsthatareequallydesirable—theyhavethesameutility.
Thecurveswouldturnintoparallelstraightlinesifpeoplewerewillingto“sell”vacation
daysforextraincomeatthesamepriceregardlessofhowmuchincomeandhowmuch
vacation time they have. The convex shape indicates diminishing marginal utility: the
moreleisureyouhave,thelessyoucareforanextradayofit,andeachaddeddayisworth
lessthantheonebefore.Similarly,themoreincomeyou have, thelessyoucareforan
extra dollar, and the amount you are willing to give up for an extra day of leisure
increases.
All locations on an indifference curve are equally attractive. This is literally what
indifferencemeans:youdon’tcarewhereyouareonanindifferencecurve.SoifAandB
areonthesameindifferencecurveforyou,youareindifferentbetweenthemandwillneed
no incentive to move from one to the other, or back. Some version of this figure has
appeared in every economics textbook written in the last hundred years, and many
millionsofstudentshavestaredatit.Fewhavenoticedwhatismissing.Hereagain,the
powerandeleganceofatheoreticalmodelhaveblindedstudentsandscholarstoaserious
deficiency.
Whatis missingfrom thefigure isan indicationof theindividual’s currentincome
andleisure.Ifyouareasalariedemployee,thetermsofyouremploymentspecifyasalary
andanumberofvacationdays,whichisapointonthemap.Thisisyourreferencepoint,
yourstatusquo,butthefiguredoesnotshowit.Byfailingtodisplayit,thetheoristswho
drawthisfigureinviteyoutobelievethatthereferencepointdoesnotmatter,butbynow
youknowthatofcourseitdoes.ThisisBernoulli’serroralloveragain.Therepresentation
of indifference curves implicitly assumes that your utility at any given moment is
determined entirely by your present situation, that the past is irrelevant, and that your
evaluation of a possible job does not depend on the terms of your current job. These
assumptionsarecompletelyunrealisticinthiscaseandinmanyothers.
TheomissionoftherefConserencepointfromtheindifferencemapisasurprising
case of theory-induced blindness, because we so often encounter cases in which the
referencepointobviouslymatters.Inlabornegotiations,itiswellunderstoodbybothsides
that the reference point is the existing contract and that the negotiations will focus on
mutualdemandsforconcessionsrelativetothatreferencepoint.Theroleoflossaversion
inbargainingisalsowellunderstood:makingconcessionshurts.Youhavemuchpersonal
experience of the role of reference point. If you changed jobs or locations, or even
consideredsuchachange,yousurelyrememberthatthefeaturesofthenewplacewere
codedasplusesorminusesrelativetowhereyouwere.Youmayalsohavenoticedthat
disadvantages loomed larger than advantages in this evaluation—loss aversion was at
work.Itisdifficulttoacceptchangesfortheworse.Forexample,theminimalwagethat
unemployedworkerswouldacceptfornewemploymentaverages90%oftheirprevious
wage,anditdropsbylessthan10%overaperiodofoneyear.
To appreciate the power that the reference point exerts on choices, consider Albert
andBen,“hedonictwins”whohaveidenticaltastesandcurrentlyholdidenticalstarting
jobs,withlittleincomeandlittleleisuretime.Theircurrentcircumstancescorrespondto
thepointmarked1infigure11.Thefirmoffersthemtwoimprovedpositions,AandB,
andletsthemdecidewhowillgetaraiseof$10,000(positionA)andwhowillgetanextra
day of paid vacation each month (position B). As they are both indifferent, they toss a
coin.Albertgetstheraise,Bengetstheextraleisure.Sometimepassesasthetwinsget
accustomedtotheir positions.Nowthe companysuggeststhey mayswitchjobs ifthey
wish.
Thestandardtheoryrepresentedinthefigureassumesthatpreferencesarestableover
time.PositionsAandBareequallyattractiveforbothtwinsandtheywillneedlittleorno
incentive to switch. In sharp contrast, prospect theory asserts that both twins will
definitelyprefertoremainastheyare.Thispreferenceforthestatusquoisaconsequence
oflossaversion.
Let us focus on Albert. He was initially in position 1 on the graph, and from that
referencepointhefoundthesetwoalternativesequallyattractive:
GotoA:araiseof$10,000
OR
GotoB:12extradaysofvacation
TakingpositionAchangesAlbert’sreferencepoint,andwhenheconsidersswitchingtoB,
hischoicehasanewstructure:
StayatA:nogainandnoloss
OR
MovetoB:12extradaysofvacationanda$10,000salarycut
Youjusthadthesubjectiveexperienceoflossaversion.Youcouldfeelit:asalarycutof
$10,000isverybadnews.Evenifagainof12vacationdayswasasimpressiveasagain
of$10,000,thesameimprovementofleisureisnotsufficienttocompensateforalossof
$10,000. Albert will stay at A because the disadvantage of moving outweighs the
advantage.ThesamereasoningappliestoBen,whowillalsowanttokeephispresentjob
becausethelossofnow-preciousleisureoutweighsthebenefitoftheextraincome.
This example highlights two aspects of choice that the st Bon s Ae st Bonandard
modelofindifferencecurvesdoesnotpredict.First,tastesarenotfixed;theyvarywiththe
referencepoint.Second,the disadvantages ofachange loom largerthanitsadvantages,
inducingabiasthatfavorsthestatusquo.Ofcourse,lossaversiondoesnotimplythatyou
never prefer to change your situation; the benefits of an opportunity may exceed even
overweightedlosses.Lossaversionimpliesonlythatchoicesarestronglybiasedinfavor
ofthereferencesituation(andgenerallybiasedtofavorsmallratherthanlargechanges).
ConventionalindifferencemapsandBernoulli’srepresentationofoutcomesasstates
ofwealthshareamistakenassumption:thatyourutilityforastateofaffairsdependsonly
onthatstateandisnotaffectedbyyourhistory.Correctingthatmistakehasbeenoneof
theachievementsofbehavioraleconomics.
TheEndowmentEffect
Thequestionofwhenanapproachoramovementgotitsstartisoftendifficulttoanswer,
buttheoriginofwhatisnowknownasbehavioraleconomicscanbespecifiedprecisely.
In the early 1970s, Richard Thaler, then a graduate student in the very conservative
economics department of the University of Rochester, began having heretical thoughts.
Thaleralwayshadasharpwitandanironicbent,andasastudentheamusedhimselfby
collectingobservationsofbehaviorthatthemodelofrationaleconomicbehaviorcouldnot
explain. He took special pleasure in evidence of economic irrationality among his
professors,andhefoundonethatwasparticularlystriking.
ProfessorR(nowrevealedtobeRichardRosett,whowentontobecomethedeanof
theUniversityofChicagoGraduateSchoolofBusiness)wasafirmbelieverinstandard
economictheoryaswellasasophisticatedwinelover.ThalerobservedthatProfessorR
wasveryreluctanttosellabottlefromhiscollection—evenatthehighpriceof$100(in
1975dollars!).ProfessorRboughtwineatauctions,butwouldneverpaymorethan$35
forabottleofthatquality.Atpricesbetween$35and$100,hewouldneitherbuynorsell.
Thelargegapisinconsistentwitheconomictheory,inwhichtheprofessorisexpectedto
haveasinglevalueforthebottle.Ifaparticularbottleisworth$50tohim,thenheshould
bewillingtosellitforanyamountinexcessof$50.Ifhedidnotownthebottle,heshould
bewillingtopayanyamountupto$50forit.Thejust-acceptablesellingpriceandthe
just-acceptablebuyingpriceshouldhavebeenidentical,butinfacttheminimumpriceto
sell($100)wasmuchhigherthanthemaximumbuyingprice of $35.Owningthegood
appearedtoincreaseitsvalue.
Richard Thaler found many examples of what he called the endowment effect,
especially for goods that are not regularly traded. You can easily imagine yourself in a
similarsituation.Supposeyouholdatickettoasold-outconcertbyapopularband,which
youboughtattheregularpriceof$200.Youareanavidfanandwouldhavebeenwilling
topayupto$500fortheticket.NowyouhaveyourticketandyoulearnontheInternet
thatricherormoredesperatefansareoffering$3,000.Wouldyousell?Ifyouresemble
mostoftheaudienceatsold-outeventsyoudonotsell.Yourlowestsellingpriceisabove
$3,000 and your maximum buying price is $500. This is an example of an endowment
effect, and a believer in standard economic theory would be puzzled by it. Thaler was
lookingforanaccountthatcouldexplainpuzzlesofthiskind.
ChanceintervenedwhenThalermetoneofourformerstudentsataconferenceand
obtained an early draft of prospect theory. He reports that he read the manuscript with
considerableBonsAbleBonexcitement,becausehequicklyrealizedthattheloss-averse
value function of prospect theory could explain the endowment effect and some other
puzzlesinhiscollection.ThesolutionwastoabandonthestandardideathatProfessorR
hadauniqueutilityforthestateofhavingaparticularbottle.Prospecttheorysuggested
thatthewillingnesstobuyorsellthebottledependsonthereferencepoint—whetheror
nottheprofessorownsthebottlenow.Ifheownsit,heconsidersthepainofgivingupthe
bottle.Ifhedoesnotownit,heconsidersthepleasureofgettingthebottle.Thevalues
wereunequalbecauseoflossaversion:givingupabottleofnicewineismorepainfulthan
gettinganequallygoodbottleispleasurable.Rememberthegraphoflossesandgainsin
the previous chapter. The slope of the function is steeper in the negative domain; the
response to a loss is stronger than the response to a corresponding gain. This was the
explanation of the endowment effect that Thaler had been searching for. And the first
application of prospect theory to an economic puzzle now appears to have been a
significantmilestoneinthedevelopmentofbehavioraleconomics.
ThalerarrangedtospendayearatStanfordwhenheknewthatAmosandIwouldbe
there. During this productive period, we learned much from each other and became
friends.Sevenyearslater,heandIhadanotheropportunitytospendayeartogetherandto
continue the conversation between psychology and economics. The Russell Sage
Foundation,whichwasforalongtimethemainsponsorofbehavioraleconomics,gave
oneofitsfirstgrantstoThalerforthepurposeofspendingayearwithmeinVancouver.
Duringthatyear,weworkedcloselywithalocaleconomist,JackKnetsch,withwhomwe
sharedintenseinterestintheendowmenteffect,therulesofeconomicfairness,andspicy
Chinesefood.
The starting point for our investigation was that the endowment effect is not
universal.Ifsomeoneasksyoutochangea$5billforfivesingles,youhandoverthefive
oneswithoutanysenseofloss.Noristheremuchlossaversionwhenyoushopforshoes.
The merchant who gives up the shoes in exchange for money certainly feels no loss.
Indeed, the shoes that he hands over have always been, from his point of view, a
cumbersome proxy for money that he was hoping to collect from some consumer.
Furthermore,youprobablydonotexperiencepayingthemerchantasaloss,becauseyou
wereeffectivelyholdingmoneyasaproxyfortheshoesyouintendedtobuy.Thesecases
of routine trading are not essentially different from the exchange of a $5 bill for five
singles.Thereisnolossaversiononeithersideofroutinecommercialexchanges.
WhatdistinguishesthesemarkettransactionsfromProfessorR’sreluctancetosellhis
wine,orthereluctanceofSuperBowlticketholderstosellevenataveryhighprice?The
distinctivefeatureisthatboththeshoesthemerchantsellsyouandthemoneyyouspend
fromyourbudgetforshoesareheld“forexchange.”Theyareintendedtobetradedfor
othergoods.Othergoods,suchaswineandSuperBowltickets,areheld“foruse,”tobe
consumed or otherwise enjoyed. Your leisure time and the standard of living that your
incomesupportsarealsonotintendedforsaleorexchange.
Knetsch, Thaler, and I set out to design an experiment that would highlight the
contrastbetweengoodsthatareheldforuseandforexchange.Weborrowedoneaspectof
thedesignofourexperimentfromVernonSmith,thefounderofexperimentaleconomics,
withwhomIwouldshareaNobelPrizemanyyearslater.Inthismethod,alimitednumber
oftokens are distributed to theparticipants ina “market.” Any participants whoown a
token at the end Bon s A end Bon of the experiment can redeem it for cash. The
redemption values differ for different individuals, to represent the fact that the goods
tradedinmarketsaremorevaluabletosomepeoplethantoothers.Thesametokenmaybe
worth$10toyouand$20tome,andanexchangeatanypricebetweenthesevalueswill
beadvantageoustobothofus.
Smithcreatedvividdemonstrationsofhowwellthebasicmechanismsofsupplyand
demandwork.Individualswouldmakesuccessivepublicofferstobuyorsellatoken,and
otherswouldrespondpubliclytotheoffer.Everyonewatchestheseexchangesandseesthe
price at which the tokens change hands. The results are as regular as those of a
demonstrationinphysics.Asinevitablyaswaterflowsdownhill,thosewhoownatoken
thatisoflittlevaluetothem(becausetheirredemptionvaluesarelow)endupsellingtheir
tokenataprofittosomeonewhovaluesitmore.Whentradingends,thetokensareinthe
handsofthosewhocangetthemostmoneyforthemfromtheexperimenter.Themagicof
themarketshasworked!Furthermore,economictheorycorrectlypredictsboth the final
priceatwhichthemarketwillsettleandthenumberoftokensthatwillchangehands.If
halftheparticipantsinthemarketwererandomlyassignedtokens,thetheorypredictsthat
halfofthetokenswillchangehands.
WeusedavariationonSmith’smethodforourexperiment.Eachsessionbeganwith
several rounds of trades for tokens, which perfectly replicated Smith’s finding. The
estimatednumberoftradeswastypicallyverycloseoridenticaltotheamountpredicted
by the standard theory. The tokens, of course, had value only because they could be
exchangedfortheexperimenterscash;theyhadnovalueforuse.Thenweconducteda
similarmarketforanobjectthatweexpectedpeopletovalueforuse:anattractivecoffee
mug, decorated with the university insignia of wherever we were conducting the
experiments.Themugwasthenworthabout$6(andwouldbeworthaboutdoublethat
amounttoday).Mugsweredistributedrandomlytohalftheparticipants.TheSellershad
theirmuginfrontofthem,andtheBuyerswereinvitedtolookattheirneighborsmug;all
indicatedthepriceatwhichtheywouldtrade.TheBuyershadtousetheirownmoneyto
acquireamug.Theresultsweredramatic:theaveragesellingpricewasaboutdoublethe
averagebuyingprice,andtheestimatednumberoftradeswaslessthanhalfofthenumber
predictedbystandardtheory.Themagicofthemarketdidnotworkforagoodthatthe
ownersexpectedtouse.
Weconductedaseriesofexperimentsusingvariantsofthesameprocedure,always
withthesameresults.MyfavoriteisoneinwhichweaddedtotheSellersandBuyersa
thirdgroup—Choosers.UnliketheBuyers,whohadtospendtheirownmoneytoacquire
thegood,theChooserscouldreceiveeitheramugorasumofmoney,andtheyindicated
theamountofmoneythatwasasdesirableasreceivingthegood.Theseweretheresults:
Sellers $7.12
Choosers $3.12
Buyers $2.87
ThegapbetweenSellersandChoosersisremarkable,becausetheyactuallyfacethesame
choice!IfyouareaSelleryoucangohomewitheitheramBonsAamBonugormoney,
andifyouareaChooseryouhaveexactlythesametwooptions.Thelong-termeffectsof
thedecisionareidenticalforthetwogroups.Theonlydifferenceisintheemotionofthe
moment.ThehighpricethatSellerssetreflectsthereluctancetogiveupanobjectthat
theyalreadyown,areluctancethatcanbeseeninbabieswhoholdonfiercelytoatoyand
show great agitation when it is taken away. Loss aversion is built into the automatic
evaluationsofSystem1.
BuyersandChooserssetsimilarcashvalues,althoughtheBuyershavetopayforthe
mug, which is free for the Choosers. This is what we would expect if Buyers do not
experiencespendingmoneyonthemugasaloss.Evidencefrombrainimagingconfirms
thedifference.Sellinggoodsthatonewouldnormallyuseactivatesregionsofthebrain
thatareassociatedwithdisgustandpain.Buyingalsoactivatestheseareas,butonlywhen
the prices are perceived as too high—when you feel that a seller is taking money that
exceedstheexchangevalue.Brainrecordingsalsoindicatethatbuyingatespeciallylow
pricesisapleasurableevent.
ThecashvaluethattheSellerssetonthemugisabitmorethantwiceashighasthe
valuesetbyChoosersandBuyers.Theratioisveryclosetothelossaversioncoefficient
in risky choice, as we might expect if the same value function for gains and losses of
moneyisappliedtobothrisklessandriskydecisions.Aratioofabout2:1hasappearedin
studies of diverse economic domains, including the response of households to price
changes.Aseconomistswouldpredict,customerstendtoincreasetheirpurchasesofeggs,
orange juice, or fish when prices drop and to reduce their purchases when prices rise;
however, incontrast to thepredictionsof economictheory, theeffectofpriceincreases
(lossesrelativetothereferenceprice)isabouttwiceaslargeastheeffectofgains.
The mugs experiment has remained the standard demonstration of the endowment
effect, along with an even simpler experiment that Jack Knetsch reported at about the
sametime.Knetschaskedtwoclassestofilloutaquestionnaireandrewardedthemwitha
giftthatremainedinfrontofthemforthedurationoftheexperiment.Inonesession,the
prizewasanexpensivepen;inanother,abarofSwisschocolate.Attheendoftheclass,
theexperimentershowedthealternativegiftandallowedeveryonetotradehisorhergift
foranother.Onlyabout10%oftheparticipantsoptedtoexchangetheirgift.Mostofthose
whohadreceivedthepenstayedwiththepen,andthosewhohadreceivedthechocolate
didnotbudgeeither.
ThinkingLikeaTrader
Thefundamentalideasofprospecttheoryarethatreferencepointsexist,andthatlosses
loom larger than corresponding gains. Observations in real markets collected over the
yearsillustratethepoweroftheseconcepts.Astudyofthemarketforcondoapartmentsin
Boston during a downturn yielded particularly clear results. The authors of that study
compared the behavior of owners of similar units who had bought their dwellings at
different prices. For a rational agent, the buying price is irrelevant history—the current
marketvalueisallthatmatters.NotsoforHumansinadownmarketforhousing.Owners
whohave a high reference pointand thus face higher lossesset ahigher price on their
dwelling, spend a longer time trying to sell their home, and eventually receive more
money.
Theoriginaldemonstrationofanasymmetrybetweensellingpricesandbuyingprices
(or, more convincingly, between selling and choosing) was very important in the initial
acceptanceoftheideasofreferencepointandlossaversiBonsAersiBonon.However,it
is well understood that reference points are labile, especially in unusual laboratory
situations, and that the endowment effect can be eliminated by changing the reference
point.
Noendowmenteffectisexpectedwhenownersviewtheirgoodsascarriersofvalue
forfutureexchanges,awidespreadattitudeinroutinecommerceandinfinancialmarkets.
The experimental economist John List, who has studied trading at baseball card
conventions,foundthatnovicetraderswerereluctanttopartwiththecardstheyowned,
butthatthisreluctanceeventuallydisappearedwithtradingexperience.Moresurprisingly,
Listfoundalargeeffectoftradingexperienceontheendowmenteffectfornewgoods.
At a convention, List displayed a notice that invited people to take part in a short
survey, for which they would be compensated with a small gift: a coffee mug or a
chocolatebarofequalvalue.Thegiftswereassignedatrandom.Asthevolunteerswere
abouttoleave,Listsaidtoeachofthem,“Wegaveyouamug[orchocolatebar],butyou
cantradeforachocolatebar[ormug]instead,ifyouwish.”InanexactreplicationofJack
Knetsch’searlierexperiment,Listfoundthatonly18%oftheinexperiencedtraderswere
willingtoexchangetheirgiftfortheother.Insharpcontrast,experiencedtradersshowed
notraceofanendowmenteffect:48%ofthemtraded!Atleastinamarketenvironmentin
whichtradingwasthenorm,theyshowednoreluctancetotrade.
Jack Knetsch also conducted experiments in which subtle manipulations made the
endowmenteffectdisappear.Participantsdisplayedanendowmenteffectonlyiftheyhad
physical possession of the good for a while before the possibility of trading it was
mentioned.EconomistsofthestandardpersuasionmightbetemptedtosaythatKnetsch
had spent too much time with psychologists, because his experimental manipulation
showedconcernforthevariablesthatsocialpsychologistsexpecttobeimportant.Indeed,
thedifferentmethodologicalconcernsofexperimentaleconomistsandpsychologistshave
beenmuchinevidenceintheongoingdebateabouttheendowmenteffect.
Veterantradershave apparentlylearnedtoask the correctquestion,whichis “How
muchdoIwanttohavethatmug,comparedwithotherthingsIcouldhaveinstead?”This
is the question that Econs ask, and with this question there is no endowment effect,
because the asymmetry between the pleasure of getting and the pain of giving up is
irrelevant.
Recentstudiesofthepsychologyof“decisionmakingunderpoverty”suggestthatthe
poorareanothergroupinwhichwedonotexpecttofindtheendowmenteffect.Being
poor, inprospecttheory,is living below one’sreferencepoint.Therearegoodsthatthe
poorneedandcannotafford,sotheyarealways“inthelosses.”Smallamountsofmoney
thattheyreceivearethereforeperceivedasareducedloss,notasagain.Themoneyhelps
oneclimbalittletowardthereferencepoint,butthepooralwaysremainonthesteeplimb
ofthevaluefunction.
Peoplewhoarepoorthinkliketraders,butthedynamicsarequitedifferent.Unlike
traders, the poor are not indifferent to the differences between gaining and giving up.
Theirproblemisthatalltheirchoicesarebetweenlosses.Moneythatisspentononegood
isthelossofanothergoodthatcouldhavebeenpurchasedinstead.Forthepoor,costsare
losses.
Weallknowpeopleforwhomspendingispainful,althoughtheyareobjectivelyquite
well-off. There may also be cultural differences in the attitude toward money, and
especiallytowardthespendingofmoneyonwhimsBonsAhimsBonandminorluxuries,
such as the purchase of a decorated mug. Such a difference may explain the large
discrepancybetweentheresultsofthe“mugsstudy”intheUnitedStatesandintheUK.
Buying and selling prices diverge substantially in experiments conducted in samples of
students of the United States, but the differences are much smaller among English
students.Muchremainstobelearnedabouttheendowmenteffect.
SpeakingOfTheEndowmentEffect
“She didn’t care which of the two offices she would get, but a day after the
announcementwasmade,shewasnolongerwillingtotrade.Endowmenteffect!”
“Thesenegotiationsaregoingnowherebecausebothsidesfinditdifficulttomake
concessions, even when they can get something in return. Losses loom larger than
gains.”
“Whentheyraisedtheirprices,demanddriedup.”
“Hejusthatestheideaofsellinghishouseforlessmoneythanhepaidforit.Loss
aversionisatwork.”
“Heisamiser,andtreatsanydollarhespendsasaloss.”
P
BadEvents
Theconceptoflossaversioniscertainlythemostsignificantcontributionofpsychologyto
behavioraleconomics.Thisisodd,becausetheideathatpeopleevaluatemanyoutcomes
asgainsandlosses,andthatlossesloomlargerthangains,surprisesnoone.AmosandI
often joked that we were engaged in studying a subject about which our grandmothers
knewagreatdeal.Infact,however,weknowmorethanourgrandmothersdidandcan
nowembedlossaversioninthecontextofabroadertwo-systemsmodelofthemind,and
specificallyabiologicalandpsychologicalviewinwhichnegativityandescapedominate
positivity and approach. We can also trace the consequences of loss aversion in
surprisinglydiverseobservations:onlyout-of-pocketlossesarecompensatedwhengoods
are lost in transport; attempts at large-scale reforms very often fail; and professional
golfersputtmoreaccuratelyforparthanforabirdie.Cleverasshewas,mygrandmother
wouldhavebeensurprisedbythespecificpredictionsfromageneralideasheconsidered
obvious.
NegativityDominance
Figure12
Your heartbeat accelerated when you looked at the left-hand figure. It accelerated even
beforeyoucouldlabelwhatissoeerieaboutthatpicture.Aftersometimeyoumayhave
recognized the eyes of a terrified person. The eyes on the right, narrowed by the Crro
raisedcheeksofasmile,expresshappiness—andtheyarenotnearlyasexciting.Thetwo
pictureswerepresentedtopeoplelyinginabrainscanner.Eachpicturewasshownforless
than2/100ofasecondandimmediatelymaskedby“visualnoise,”arandomdisplayof
darkandbrightsquares.Noneofthe observers ever consciouslyknewthathehadseen
picturesofeyes,but one partoftheirbrain evidently knew: theamygdala,whichhas a
primary role as the “threat center” of the brain, although it is also activated in other
emotional states. Images of the brain showed an intense response of the amygdala to a
threatening picture that the viewer did not recognize. The information about the threat
probablytraveledviaasuperfastneuralchannelthatfeedsdirectlyintoapartofthebrain
that processes emotions, bypassing the visual cortex that supports the conscious
experienceof “seeing.”Thesame circuitalso causesschematicangry faces(a potential
threat) to be processed faster and more efficiently than schematic happy faces. Some
experimentershavereportedthatanangryface“popsout”ofacrowdofhappyfaces,but
asinglehappyfacedoesnotstandoutinanangrycrowd.Thebrainsofhumansandother
animalscontainamechanismthatisdesignedtogiveprioritytobadnews.Byshavinga
few hundredths of a second from the time needed to detect a predator, this circuit
improvestheanimal’soddsoflivinglongenoughtoreproduce.Theautomaticoperations
of System 1 reflect this evolutionary history. No comparably rapid mechanism for
recognizing good news has been detected. Of course, we and our animal cousins are
quickly alerted to signs of opportunities to mate or to feed, and advertisers design
billboardsaccordingly.Still,threatsareprivilegedaboveopportunities,astheyshouldbe.
The brain responds quickly even to purely symbolic threats. Emotionally loaded
wordsquicklyattractattention,andbadwords(war,crime)attractattentionfasterthando
happywords(peace,love).Thereisnorealthreat,butthemerereminderofabadeventis
treatedinSystem1asthreatening.Aswesawearlierwiththewordvomit,thesymbolic
representationassociativelyevokes inattenuated formmany of thereactions tothe real
thing,includingphysiologicalindicesofemotionandevenfractionaltendenciestoavoid
orapproach,recoilorleanforward.Thesensitivitytothreatsextendstotheprocessingof
statementsofopinionswithwhichwestronglydisagree.Forexample,dependingonyour
attitudetoeuthanasia,itwouldtakeyourbrainlessthanone-quarterofasecondtoregister
the “threat” in a sentence that starts with “I think euthanasia is an
acceptable/unacceptable…”
ThepsychologistPaulRozin,anexpertondisgust,observedthatasinglecockroach
willcompletelywrecktheappealofabowlofcherries,butacherrywilldonothingatall
for a bowl of cockroaches. As he points out, the negative trumps the positive in many
ways,andlossaversionisoneofmanymanifestationsofabroadnegativitydominance.
Otherscholars,inapapertitled“BadIsStrongerThanGood,”summarizedtheevidence
asfollows:“Bademotions,bad parents, and badfeedbackhavemoreimpact than good
ones, and bad information is processed more thoroughly than good. The self is more
motivatedtoavoidbadself-definitionsthantopursuegoodones.Badimpressionsandbad
stereotypes are quicker to form and more resistant to disconfirmation than good ones.”
TheyciteJohnGottman,thewell-knownexpertinmaritalrelations,whoobservedthatthe
long-term success of a relationship depends far more on avoiding the negative than on
seeking the positive. Gottman estimated that a stable relationship requires Brro Qres
Brrthatgoodinteractionsoutnumberbadinteractionsbyatleast5to1.Otherasymmetries
inthesocialdomainareevenmorestriking.Weallknowthatafriendshipthatmaytake
yearstodevelopcanberuinedbyasingleaction.
Somedistinctionsbetweengoodandbadarehardwiredintoourbiology.Infantsenter
theworldreadytorespondtopainasbadandtosweet(uptoapoint)asgood.Inmany
situations,however,theboundarybetweengoodandbadisareferencepointthatchanges
overtimeanddependsontheimmediatecircumstances.Imaginethatyouareoutinthe
countryonacoldnight,inadequatelydressedforthetorrentialrain,yourclothessoaked.A
stingingcoldwindcompletesyourmisery.Asyouwanderaround,youfindalargerock
thatprovidessomeshelterfromthefuryoftheelements.ThebiologistMichelCabanac
would call the experience of that moment intensely pleasurable because it functions, as
pleasurenormallydoes,toindicatethedirectionofabiologicallysignificantimprovement
ofcircumstances.Thepleasantreliefwillnotlastverylong,ofcourse,andyouwillsoon
beshiveringbehindtherockagain,drivenbyyourrenewedsufferingtoseekbettershelter.
GoalsareReferencePoints
Lossaversionreferstotherelativestrengthoftwomotives:wearedrivenmorestronglyto
avoidlossesthantoachievegains.Areferencepointissometimesthestatusquo,butit
canalsobeagoalinthefuture:notachievingagoalisaloss,exceedingthegoalisagain.
Aswemightexpectfromnegativitydominance,thetwomotivesarenotequallypowerful.
Theaversion to the failure ofnot reachingthe goal ismuch strongerthan thedesire to
exceedit.
Peopleoftenadoptshort-termgoalsthattheystrivetoachievebutnotnecessarilyto
exceed.Theyarelikelytoreducetheireffortswhentheyhavereachedanimmediategoal,
with results that sometimes violate economic logic. New York cabdrivers, for example,
mayhaveatargetincomeforthemonthortheyear,butthegoalthatcontrolstheireffortis
typicallyadailytargetofearnings.Ofcourse,thedailygoalismucheasiertoachieve(and
exceed)onsomedaysthanonothers.Onrainydays,aNewYorkcabneverremainsfree
forlong,andthedriverquicklyachieveshistarget;notsoinpleasantweather,whencabs
often waste time cruising the streets looking for fares. Economic logic implies that
cabdriversshouldworkmanyhoursonrainydaysandtreatthemselvestosomeleisureon
mild days, when they can “buy” leisure at a lower price. The logic of loss aversion
suggeststheopposite:driverswhohaveafixeddailytargetwillworkmanymorehours
whenthepickingsareslimandgohomeearlywhenrain-drenchedcustomersarebegging
tobetakensomewhere.
The economists Devin Pope and Maurice Schweitzer, at the University of
Pennsylvania, reasoned that golf provides a perfect example of a reference point: par.
Everyholeonthegolfcoursehasanumberofstrokesassociatedwithit;theparnumber
provides the baseline for good—but not outstanding—performance. For a professional
golfer,abirdie(onestrokeunderpar)isagain,andabogey(onestrokeoverpar)isaloss.
Theeconomistscomparedtwosituationsaplayermightfacewhennearthehole:
putttoavoidabogey
putttoachieveabirdie
Everystrokecountsingolf,andinprofessionalgolfeverystrokecountsalot.According
toprospecttheory,however,somestrokescountmorethanothers.Failingtomakeparisa
los Brro Q los Brrs, but missing a birdie putt is a foregone gain, not a loss. Pope and
Schweitzerreasonedfromlossaversionthatplayerswouldtryalittleharderwhenputting
forpar(toavoidabogey)thanwhenputtingforabirdie.Theyanalyzedmorethan2.5
millionputtsinexquisitedetailtotestthatprediction.
Theywereright.Whethertheputtwaseasyorhard,ateverydistancefromthehole,
theplayersweremoresuccessfulwhenputtingforparthanforabirdie.Thedifferencein
theirrateofsuccesswhengoingforpar(toavoidabogey)orforabirdiewas3.6%.This
differenceisnottrivial.TigerWoodswasoneofthe“participants”intheirstudy.Ifinhis
best years Tiger Woods had managed to putt as well for birdies as he did for par, his
averagetournamentscorewouldhaveimprovedbyonestrokeandhisearningsbyalmost
$1 million per season. These fierce competitors certainly do not make a conscious
decision to slack off on birdie putts, but their intense aversion to a bogey apparently
contributestoextraconcentrationonthetaskathand.
Thestudyofputtsillustratesthepowerofatheoreticalconceptasanaidtothinking.
Who would have thought it worthwhile to spend months analyzing putts for par and
birdie?Theideaoflossaversion,whichsurprisesnooneexceptperhapssomeeconomists,
generated a precise and nonintuitive hypothesis and led researchers to a finding that
surprisedeveryone—includingprofessionalgolfers.
DefendingtheStatusQuo
Ifyouaresettolookforit,theasymmetricintensityofthemotivestoavoidlossesandto
achievegainsshowsupalmosteverywhere.Itisanever-presentfeatureofnegotiations,
especially of renegotiations of an existing contract, the typical situation in labor
negotiations and in international discussions of trade or arms limitations. The existing
termsdefinereferencepoints, andaproposed change inanyaspect of theagreementis
inevitablyviewedasaconcessionthatonesidemakestotheother.Lossaversioncreates
anasymmetrythatmakesagreementsdifficulttoreach.Theconcessionsyoumaketome
aremygains,buttheyareyourlosses;theycauseyoumuchmorepainthantheygiveme
pleasure.Inevitably,youwillplaceahighervalueonthemthanIdo.Thesameistrue,of
course,oftheverypainfulconcessionsyoudemandfromme,whichyoudonotappearto
valuesufficiently!Negotiationsoverashrinkingpieareespeciallydifficult,becausethey
requireanallocationoflosses.Peopletendtobemuchmoreeasygoingwhentheybargain
overanexpandingpie.
Many of the messages that negotiators exchange in the course of bargaining are
attemptstocommunicateareferencepointandprovideananchortotheotherside.The
messages are not always sincere. Negotiators often pretend intense attachment to some
good(perhapsmissilesofaparticulartypeinbargainingoverarmsreductions),although
theyactuallyviewthatgoodasabargainingchipandintendultimatelytogiveitawayin
anexchange.Becausenegotiatorsareinfluencedbyanormofreciprocity, a concession
thatispresentedaspainfulcallsforanequallypainful(andperhapsequallyinauthentic)
concessionfromtheotherside.
Animals,includingpeople,fighthardertopreventlossesthantoachievegains.Inthe
worldofterritorialanimals,thisprincipleexplainsthesuccessofdefenders.Abiologist
observedthat“whenaterritoryholderischallengedbyarival,theowneralmostalways
winsthecontest—usuallywithinamatterofseconds.”Inhumanaffairs,thesamesimple
rule explains much of what happens when institutions attempt to reform themselves, in
“reo Brro Q;reo Brrrganizations” and “restructuring” of companies, and in efforts to
rationalize a bureaucracy, simplify the tax code, or reduce medical costs. As initially
conceived,plansforreformalmostalwaysproducemanywinnersandsomeloserswhile
achieving an overall improvement. If the affected parties have any political influence,
however,potentialloserswillbemoreactiveanddeterminedthanpotentialwinners;the
outcomewillbebiasedintheirfavorandinevitablymoreexpensiveandlesseffectivethan
initially planned. Reforms commonly include grandfather clauses that protect current
stake-holders—for example, when the existing workforce is reduced by attrition rather
thanbydismissals,orwhencutsinsalariesandbenefitsapplyonlytofutureworkers.Loss
aversionisapowerfulconservativeforcethatfavorsminimalchangesfromthestatusquo
inthelivesofbothinstitutionsandindividuals.Thisconservatismhelpskeepusstablein
ourneighborhood,ourmarriage,andourjob;itisthegravitationalforcethatholdsourlife
togethernearthereferencepoint.
LossAversionintheLaw
During the year that we spent working together in Vancouver, Richard Thaler, Jack
Knetsch, and I were drawn into a study of fairness in economic transactions, partly
becausewewereinterestedinthetopicbutalsobecausewehadanopportunityaswellas
an obligation to make up a new questionnaire every week. The Canadian government’s
Department of Fisheries and Oceans had a program for unemployed professionals in
Toronto,whowerepaidtoadministertelephonesurveys.Thelargeteamofinterviewers
worked every night and new questions were constantly needed to keep the operation
going.ThroughJackKnetsch,weagreedtogenerateaquestionnaireeveryweek,infour
color-labeled versions. We could ask about anything; the only constraint was that the
questionnaire should include at least one mention of fish, to make it pertinent to the
missionofthedepartment.Thiswentonformanymonths,andwetreatedourselvestoan
orgyofdatacollection.
We studied public perceptions of what constitutes unfair behavior on the part of
merchants, employers, and landlords. Our overarching question was whether the
opprobriumattachedtounfairnessimposesconstraintsonprofitseeking.Wefoundthatit
does.Wealsofoundthatthemoralrulesbywhichthepublicevaluateswhatfirmsmayor
maynotdodrawacrucialdistinctionbetweenlossesandgains.Thebasicprincipleisthat
the existing wage, price, or rent sets a reference point, which has the nature of an
entitlementthatmustnotbeinfringed.Itisconsideredunfairforthefirmtoimposelosses
onitscustomersorworkersrelativetothereferencetransaction,unlessitmustdosoto
protectitsownentitlement.Considerthisexample:
Ahardwarestorehasbeensellingsnowshovelsfor$15.Themorningafteralarge
snowstorm,thestoreraisesthepriceto$20.
Pleaseratethisactionas:
CompletelyFairAcceptableUnfairVeryUnfair
Thehardwarestorebehavesappropriatelyaccordingtothestandardeconomicmodel:it
respondstoincreaseddemandbyraisingitsprice.Theparticipantsinthesurveydidnot
agree:82%ratedtheactionUnfairorVeryUnfair.Theyevidentlyviewedthepre-blizzard
price as a reference point and the raised price as a loss that the store imposes on its
customers, not because it must but simply because it can. A basic rule of fairness, we
found,iBrroQd,iBrrsthattheexploitationofmarketpowertoimposelossesonothersis
unacceptable. The following example illustrates this rule in another context (the dollar
values should be adjusted for about 100% inflation since these data were collected in
1984):
Asmallphotocopyingshophasoneemployeewhohasworkedthereforsixmonths
andearns$9perhour.Businesscontinuestobesatisfactory,butafactoryinthearea
has closed and unemployment has increased. Other small shops have now hired
reliableworkersat$7anhourtoperformjobssimilartothosedonebythephotocopy
shopemployee.Theowneroftheshopreducestheemployee’swageto$7.
The respondents did not approve: 83% considered the behavior Unfair or Very Unfair.
However, a slight variation on the question clarifies the nature of the employers
obligation.Thebackgroundscenarioofaprofitablestoreinanareaofhighunemployment
isthesame,butnow
thecurrentemployeeleaves,andtheownerdecidestopayareplacement$7anhour.
A large majority (73%) considered this action Acceptable. It appears that the employer
does not have a moral obligation to pay $9 an hour. The entitlement is personal: the
currentworkerhasarighttoretainhiswageevenifmarketconditionswouldallowthe
employer to impose a wage cut. The replacement worker has no entitlement to the
previousworkersreference wage, andthe employeris thereforeallowedto reducepay
withouttheriskofbeingbrandedunfair.
The firm has its own entitlement, which is to retain its current profit. If it faces a
threat of a loss, it is allowed to transfer the loss to others. A substantial majority of
respondentsbelievedthatitisnotunfairforafirmtoreduceitsworkers’wageswhenits
profitabilityisfalling.Wedescribedtherulesasdefiningdualentitlementstothefirmand
toindividualswithwhomitinteracts.Whenthreatened,itisnotunfairforthefirmtobe
selfish.Itisnotevenexpectedtotakeonpartofthelosses;itcanpassthemon.
Different rules governed what the firm could do to improve its profits or to avoid
reducedprofits.Whenafirmfacedlowerproductioncosts,therulesoffairnessdidnot
require it to share the bonanza with either its customers or its workers. Of course, our
respondentslikedafirmbetteranddescribeditasmorefairifitwasgenerouswhenits
profitsincreased,buttheydidnotbrandasunfairafirmthatdidnotshare.Theyshowed
indignationonlywhenafirmexploiteditspowertobreakinformalcontractswithworkers
orcustomers,andtoimposealossonothersinordertoincreaseitsprofit.Theimportant
taskforstudentsofeconomicfairnessisnottoidentifyidealbehaviorbuttofindtheline
thatseparatesacceptableconductfromactionsthatinviteopprobriumandpunishment.
WewerenotoptimisticwhenwesubmittedourreportofthisresearchtotheAmerican
EconomicReview.Ourarticlechallengedwhatwasthenacceptedwisdomamongmany
economiststhateconomicbehaviorisruledbyself-interestandthatconcernsforfairness
are generally irrelevant. We also relied on the evidence of survey responses, for which
economistsgenerallyhavelittlerespect.However,theeditorofthejournalsentourarticle
for evaluation to two economists who were not bound by those conventions (we later
learnedtheiridentity;theywerethemostfriendlytheeditorcouldhavefound).Theeditor
madethecorrectcall.Thearticleisoftencited,anditsconclusionsBrroQionsBrrhave
stoodthetestoftime.Morerecentresearchhassupportedtheobservationsofreference-
dependentfairnessandhasalsoshownthatfairnessconcernsareeconomicallysignificant,
afact wehad suspectedbut didnot prove. Employers whoviolate rulesof fairnessare
punishedbyreducedproductivity,andmerchantswhofollowunfairpricingpoliciescan
expecttolosesales.Peoplewholearnedfromanewcatalogthatthemerchantwasnow
charginglessforaproductthattheyhadrecentlyboughtatahigherpricereducedtheir
future purchases from that supplier by 15%, an average loss of $90 per customer. The
customers evidently perceived the lower price as the reference point and thought of
themselves as having sustained a loss by paying more than appropriate. Moreover, the
customerswhoreactedthemoststronglywerethosewhoboughtmoreitemsandathigher
prices.Thelossesfar exceeded the gainsfromtheincreasedpurchasesproducedbythe
lowerpricesinthenewcatalog.
Unfairly imposing losses on people can be risky if the victims are in a position to
retaliate. Furthermore, experiments have shown that strangers who observe unfair
behavior often join in the punishment. Neuroeconomists (scientists who combine
economicswithbrainresearch)haveusedMRImachinestoexaminethebrainsofpeople
who are engaged in punishing one stranger for behaving unfairly to another stranger.
Remarkably,altruisticpunishmentisaccompaniedbyincreasedactivityinthe“pleasure
centers”ofthebrain.Itappearsthatmaintainingthesocialorderandtherulesoffairness
inthisfashionisitsownreward.Altruisticpunishmentcouldwellbethegluethatholds
societiestogether.However,ourbrainsarenotdesignedtorewardgenerosityasreliablyas
theypunishmeanness.Hereagain,wefindamarkedasymmetrybetweenlossesandgains.
The influence of loss aversion and entitlements extends far beyond the realm of
financialtransactions.Juristswerequicktorecognizetheirimpactonthelawandinthe
administration of justice. In one study, David Cohen and Jack Knetsch found many
examples of a sharp distinction between actual losses and foregone gains in legal
decisions.Forexample,amerchantwhosegoodswerelostintransitmaybecompensated
for costs he actually incurred, but is unlikely to be compensated for lost profits. The
familiar rule that possession is nine-tenths of the law confirms the moral status of the
referencepoint.Inamorerecentdiscussion,EyalZamirmakestheprovocativepointthat
thedistinctiondrawninthelawbetweenrestoringlossesandcompensatingforforegone
gainsmay bejustifiedby theirasymmetrical effectson individual well-being.If people
wholosesuffermorethanpeoplewhomerelyfailtogain,theymayalsodeservemore
protectionfromthelaw.
SpeakingofLosses
“Thisreformwillnotpass.Thosewhostandtolosewillfightharderthanthosewho
standtogain.”
“Eachofthemthinkstheothersconcessionsarelesspainful.Theyarebothwrong,
ofcourse.It’sjusttheasymmetryoflosses.”
“Theywouldfinditeasiertorenegotiatetheagreementiftheyrealizedthepiewas
actuallyexpanding.They’renotallocatinglosses;theyareallocatinggains.”
“Rental prices around here have gone up r Brro Qup r Brrecently, but our tenants
don’t think it’s fair that we should raise their rent, too. They feel entitled to their
currentterms.”
“Myclientsdon’tresentthepricehikebecausetheyknowmycostshavegoneup,
too.Theyacceptmyrighttostayprofitable.”
P
TheFourfoldPattern
Wheneveryouformaglobalevaluationofacomplexobject—acaryoumay buy,your
son-in-law, or an uncertain situation—you assign weights to its characteristics. This is
simplyacumbersomewayofsayingthatsomecharacteristicsinfluenceyourassessment
more than others do. The weighting occurs whether or not you are aware of it;it is an
operationofSystem1.Youroverallevaluationofacarmayputmoreorlessweighton
gas economy, comfort, or appearance. Your judgment of your son-in-law may depend
moreorlessonhowrichorhandsomeorreliableheis.Similarly,yourassessmentofan
uncertain prospect assigns weights to the possible outcomes. The weights are certainly
correlatedwiththeprobabilitiesoftheseoutcomes:a50%chancetowinamillionismuch
moreattractivethana1%chancetowinthesameamount.Theassignmentofweightsis
sometimesconsciousanddeliberate.Mostoften,however,youarejustanobservertoa
globalevaluationthatyourSystem1delivers.
ChangingChances
Onereasonforthepopularityofthegamblingmetaphorinthestudyofdecisionmakingis
thatitprovidesanaturalrulefortheassignmentofweightstotheoutcomesofaprospect:
themoreprobableanoutcome,themoreweightitshouldhave.Theexpectedvalueofa
gambleistheaverageofitsoutcomes,eachweightedbyitsprobability.Forexample,the
expectedvalueof“20%chancetowin$1,000and75%chancetowin$100”is$275.In
thepre-Bernoullidays,gambleswereassessedbytheirexpectedvalue.Bernoulliretained
this method for assigning weights to the outcomes, which is known as the expectation
principle, but applied it to the psychological value of the outcomes. The utility of a
gamble,inhistheory,istheaverageoftheutilitiesofitsoutcomes,eachweightedbyits
probability.
The expectation principle does not correctly describe how you think about the
probabilities related to risky prospects. In the four examples below, your chances of
receiving$1millionimproveby5%.Isthenewsequallygoodineachcase?
A.From0to5%
B.From5%to10%
C.From60%to65%
D.From95%to100%
Theexpectationprincipleassertsthatyourutilityincreasesineachcasebyexactly5%of
the utility of receiving $1 million. Does this prediction describe your experiences? Of
coursenot.
Everyoneagreesthat0 5%and95% 100%aremoreimpressivethaneither5%
10% or 60% 65%. Increasing the chances from 0 to 5% transforms the situation,
creating a possibility that did not exist earlier, a hope of winning the prize. It is a
qualitativechange,where5 10%isonlyaquantitativeimprovement.Thechangefrom
5% to 10% doubles the probability of winning, but there is general agreement that the
psychological value of the prospect does not double. The large impact of 0 5%
illustrates the possibility effect, which causes highly unlikely outcomes to be weighted
disproportionately more than they “deserve.” People who buy lottery tickets in vast
amountsshowthemselveswillingtopaymuchmorethanexpectedvalueforverysmall
chancestowinalargeprize.
Theimprovementfrom95%to100% isanotherqualitativechangethathasa large
impact,thecertaintyeffect.Outcomesthatarealmostcertainaregivenlessweightthan
theirprobabilityjustifies.Toappreciatethecertaintyeffect,imaginethatyouinherited$1
million,butyourgreedystepsisterhascontestedthewillincourt.Thedecisionisexpected
tomorrow.Yourlawyerassuresyouthatyouhaveastrongcaseandthatyouhavea95%
chancetowin,buthetakespainstoremindyouthatjudicialdecisionsareneverperfectly
predictable.Nowyouareapproachedbyarisk-adjustmentcompany,whichofferstobuy
yourcasefor$910,000outright—takeitorleaveit.Theofferislower(by$40,000!)than
theexpectedvalueofwaitingforthejudgment(whichis$950,000),butareyouquitesure
youwould wantto reject it?If suchan eventactuallyhappens inyour life,you should
knowthatalargeindustryof“structuredsettlements”existstoprovidecertaintyatahefty
price,bytakingadvantageofthecertaintyeffect.
Possibility and certainty have similarly powerful effects in the domain of losses.
Whenalovedoneiswheeledintosurgery,a5%riskthatanamputationwillbenecessary
isverybad—muchmorethanhalfasbadasa10%risk.Becauseofthepossibilityeffect,
wetendtooverweightsmallrisksandarewillingtopayfarmorethanexpectedvalueto
eliminate them altogether. The psychological difference between a 95% risk of disaster
andthecertaintyofdisasterappearstobeevengreater;thesliverofhopethateverything
couldstillbeokayloomsverylarge.Overweightingofsmallprobabilitiesincreasesthe
attractivenessofbothgamblesandinsurancepolicies.
The conclusion is straightforward: the decision weights that people assign to
outcomes are not identical to the probabilities of these outcomes, contrary to the
expectation principle. Improbable outcomes are overweighted—this is the possibility
effect.Outcomesthatarealmostcertainareunderweightedrelativetoactualcertainty.The
expectation principle, by which values are weighted by their probability, is poor
psychology.
The plot thickens, however, because there is a powerful argument that a decision
makerwhowishestoberationalmustconformtotheexpectationprinciple.Thiswasthe
mainpointoftheaxiomaticversionofutilitytheorythatvonNeumannandMorgenstern
introduced in 1944. They proved that any weighting of uncertain outcomes that is not
strictly proportional to probability leads to inconsistencies and other disasters. Their
derivation of the expectation principle from axioms of rational choice was immediately
recognizedasamonumentalachievement,whichplacedexpectedutilitytheoryatthecore
of the rational agent model in economics and other social sciences. Thirty years later,
when Amos introduced me to their work, he presented it as an object of awe. He also
introducedmeBimaameBimtoafamouschallengetothattheory.
Allais’sParadox
In1952,afewyearsafterthepublicationofvonNeumannandMorgenstern’stheory,a
meeting was convened in Paris to discuss the economics of risk. Many of the most
renownedeconomistsofthetimewereinattendance.TheAmericanguestsincludedthe
futureNobellaureatesPaulSamuelson,KennethArrow,andMiltonFriedman,aswellas
theleadingstatisticianJimmieSavage.
One of the organizers of the Paris meeting was Maurice Allais, who would also
receiveaNobelPrizesomeyearslater.Allaishadsomethinguphissleeve,acoupleof
questionsonchoicethathepresentedtohisdistinguishedaudience.Inthetermsofthis
chapter,Allaisintendedtoshowthathisguestsweresusceptibletoacertaintyeffectand
thereforeviolatedexpectedutilitytheoryandtheaxiomsofrationalchoiceonwhichthat
theoryrests.ThefollowingsetofchoicesisasimplifiedversionofthepuzzlethatAllais
constructed.InproblemsAandB,whichwouldyouchoose?
A.61%chancetowin$520,000OR63%chancetowin$500,000
B.98%chancetowin$520,000OR100%chancetowin$500,000
Ifyouarelikemostotherpeople,youpreferredtheleft-handoptioninproblemAandyou
preferredtheright-handoptioninproblemB.Ifthesewereyourpreferences,youhavejust
committed a logical sin and violated the rules of rational choice. The illustrious
economistsassembledinPariscommittedsimilarsinsinamoreinvolvedversionofthe
“Allaisparadox.”
To see why these choices are problematic, imagine that the outcome will be
determinedbyablinddrawfromanurnthatcontains100marbles—youwinifyoudrawa
redmarble,youloseifyoudrawwhite.InproblemA,almosteverybodypreferstheleft-
handurn,althoughithasfewerwinningredmarbles,becausethedifferenceinthesizeof
theprizeismoreimpressivethanthedifferenceinthechancesofwinning.InproblemB,a
largemajoritychoosestheurnthatguaranteesagainof$500,000.Furthermore,peopleare
comfortablewithbothchoices—untiltheyareledthroughthelogicoftheproblem.
Comparethetwoproblems,andyouwillseethatthetwournsofproblemBaremore
favorable versions of the urns of problem A, with 37 white marbles replaced by red
winning marbles in each urn. The improvement on the left is clearly superior to the
improvementontheright,sinceeachredmarblegivesyouachancetowin$520,000on
the left and only $500,000 on the right. So you started in the first problem with a
preferencefortheleft-handurn,whichwasthenimprovedmorethantheright-handurn—
butnowyouliketheoneontheright!Thispatternofchoicesdoesnotmakelogicalsense,
butapsychologicalexplanationisreadilyavailable:thecertaintyeffectisatwork.The2%
difference between a 100% and a 98% chance to win in problem B is vastly more
impressivethanthesamedifferencebetween63%and61%inproblemA.
AsAllaishadanticipated,thesophisticatedparticipantsatthemeetingdidnotnotice
thattheirpreferencesviolatedutilitytheoryuntilhedrewtheirattentiontothatfactasthe
meetingwasabouttoend.Allaishadintendedthisannouncementtobeabombshell:the
leadingdecisiontheoristsin the worldhadpreferencesthat wereinconsistentwiththeir
ownviewofrationality!Heapparentlybelievedthathisaudiencewouldbepersuadedto
giveuptheapproachthatBimaahatBimherathercontemptuouslylabeled“theAmerican
school” and adopt an alternative logic of choice that he had developed. He was to be
sorelydisappointed.
Economists who were not aficionados of decision theory mostly ignored the Allais
problem.Asoftenhappenswhenatheorythathasbeenwidelyadoptedandfounduseful
ischallenged,theynotedtheproblemasananomalyandcontinuedusingexpectedutility
theoryasifnothinghadhappened.Incontrast,decisiontheorists—amixedcollectionof
statisticians, economists, philosophers, and psychologists—took Allais’s challenge very
seriously. When AmosandI beganourwork, oneofour initialgoalswasto developa
satisfactorypsychologicalaccountofAllais’sparadox.
Most decision theorists, notably including Allais, maintained their belief in human
rationality and tried to bend the rules of rational choice to make the Allais pattern
permissible. Over the years there have been multiple attempts to find a plausible
justification for the certainty effect, none very convincing. Amos had little patience for
these efforts; he called the theorists who tried to rationalize violations of utility theory
“lawyersforthemisguided.”Wewentinanotherdirection.Weretainedutilitytheoryasa
logicofrationalchoicebutabandonedtheideathatpeopleareperfectlyrationalchoosers.
Wetookonthetaskofdevelopingapsychologicaltheorythatwoulddescribethechoices
peoplemake,regardlessofwhethertheyarerational.Inprospecttheory,decisionweights
wouldnotbeidenticaltoprobabilities.
DecisionWeights
Manyyearsafterwepublishedprospecttheory,AmosandIcarriedoutastudyinwhich
wemeasuredthedecisionweightsthatexplainedpeople’spreferencesfor gambles with
modestmonetarystakes.Theestimatesforgainsareshownintable4.
Table4
Youcanseethatthedecisionweightsareidenticaltothecorrespondingprobabilitiesatthe
extremes:bothequalto0whentheoutcomeisimpossible,andbothequalto100whenthe
outcomeisasurething.However,decisionweightsdepartsharplyfromprobabilitiesnear
these points. At the low end, we find the possibility effect: unlikely events are
considerably overweighted. For example, the decision weight that corresponds to a 2%
chanceis8.1.Ifpeopleconformedtotheaxiomsofrationalchoice,thedecisionweight
wouldbe2—sotherareeventisoverweightedbyafactorof4.Thecertaintyeffectatthe
otherendoftheprobabilityscaleisevenmorestriking.A2%riskofnotwinningtheprize
reducestheutilityofthegambleby13%,from100to87.1.
Toappreciate the asymmetrybetweenthe possibilityeffectand thecertaintyeffect,
imaginefirstthatyouhavea1%chancetowin$1million.Youwillknowtheoutcome
tomorrow.Now,imaginethatyouarealmostcertaintowin$1million,butthereisa1%
chancethatyouwillnot.Again,youwilllearntheoutcometomorrow.Theanxietyofthe
secondsituationappearstobemoresalientthanthehopeinthefirst.Thecertaintyeffect
isalsomorestrikingthanthepossibilityeffectiftheoutcomeisasurgicaldisasterrather
thanafinancialgain.Comparetheintensitywithwhichyoufocusonthefaintsliverof
hopeinanoperationthatisalmostcertaintobefatal,comparedtothefearofa1%risk.
<Bimaav><Bimpheight=“0%”width=“5%”>Thecombinationofthecertaintyeffect
andpossibilityeffectsatthetwoendsoftheprobabilityscaleisinevitablyaccompanied
by inadequate sensitivity to intermediate probabilities. You can see that the range of
probabilitiesbetween5% and95%is associatedwitha muchsmallerrange ofdecision
weights (from 13.2 to 79.3), about two-thirds as much as rationally expected.
Neuroscientists have confirmed these observations, finding regions of the brain that
respondtochangesintheprobabilityofwinningaprize.Thebrain’sresponsetovariations
ofprobabilitiesisstrikinglysimilartothedecisionweightsestimatedfromchoices.
Probabilitiesthatareextremelyloworhigh(below1%orabove99%)areaspecial
case.Itisdifficulttoassignauniquedecisionweighttoveryrareevents,becausetheyare
sometimesignoredaltogether,effectivelyassignedadecisionweightofzero.Ontheother
hand,whenyoudonotignoretheveryrareevents,youwillcertainlyoverweightthem.
Mostofusspendverylittletimeworryingaboutnuclearmeltdownsorfantasizingabout
largeinheritancesfromunknownrelatives.However,whenanunlikelyeventbecomesthe
focus of attention, we will assign it much more weight than its probability deserves.
Furthermore,peoplearealmostcompletelyinsensitivetovariationsofriskamongsmall
probabilities.Acancerriskof0.001%isnoteasilydistinguishedfromariskof0.00001%,
although the former would translate to 3,000 cancers for the population of the United
States,andthelatterto30.
When you pay attention to a threat, you worry—and the decision weights reflect how
much you worry. Because of the possibility effect, the worry is not proportional to the
probabilityofthethreat.Reducingormitigatingtheriskisnotadequate;toeliminatethe
worrytheprobabilitymustbebroughtdowntozero.
Thequestionbelowisadaptedfromastudyoftherationalityofconsumervaluations
ofhealthrisks,whichwaspublishedbyateamofeconomistsinthe1980s.Thesurvey
wasaddressedtoparentsofsmallchildren.
Supposethatyoucurrentlyuseaninsectspraythatcostsyou$10perbottleandit
resultsin15inhalationpoisoningsand15childpoisoningsforevery10,000bottles
ofinsectspraythatareused.
Youlearnofamoreexpensiveinsecticidethatreduceseachoftherisksto5forevery
10,000bottles.Howmuchwouldyoubewillingtopayforit?
Theparentswerewillingto payan additional$2.38,onaverage, to reducetherisksby
two-thirds from 15 per 10,000 bottles to 5. They were willing to pay $8.09, more than
threetimesasmuch,toeliminateitcompletely.Otherquestionsshowedthattheparents
treatedthetworisks(inhalationandchildpoisoning)asseparateworriesandwerewilling
topaya certaintypremiumforthecompleteeliminationof eitherone.Thispremiumis
compatiblewiththepsychologyofworrybutnotwiththerationalmodel.
TheFourfoldPattern
When Amos and I began our work on prospect theory, we quickly reached two
conclusions: people attach values to gains and losses rather than to wealth, and the
decisionweightsthattheyassigntooutcomesaredifferentfromprobabilities.Neitheridea
wascompletelynew,butincombinationtheyexplainedadistinctivepatternofpreferences
thatwecaBimaaecaBimlledthefourfoldpattern.Thenamehasstuck.Thescenariosare
illustratedbelow.
Figure13
Thetoprowineachcellshowsanillustrativeprospect.
Thesecondrowcharacterizesthefocalemotionthattheprospectevokes.
Thethirdrow indicateshowmostpeoplebehavewhenofferedachoicebetweena
gambleandasuregain(orloss)thatcorrespondstoitsexpectedvalue(forexample,
between“95%chancetowin$10,000”and“$9,500withcertainty”).Choicesaresaid
toberiskaverseifthesurethingispreferred,riskseekingifthegambleispreferred.
Thefourthrowdescribestheexpectedattitudesofadefendantandaplaintiffasthey
discussasettlementofacivilsuit.
Thefourfoldpatternofpreferencesisconsideredoneofthecoreachievementsofprospect
theory.Threeofthefourcellsarefamiliar;thefourth(topright)wasnewandunexpected.
ThetopleftistheonethatBernoullidiscussed:peopleareaversetoriskwhenthey
considerprospectswithasubstantialchancetoachievealargegain.Theyarewilling
toacceptlessthantheexpectedvalueofagambletolockinasuregain.
Thepossibilityeffectinthebottomleftcellexplainswhylotteriesarepopular.When
thetopprizeisverylarge,ticketbuyersappearindifferenttothefactthattheirchance
of winning is minuscule. A lottery ticket is the ultimate example of the possibility
effect.Withoutaticketyoucannotwin,withaticketyouhaveachance,andwhether
thechanceistinyormerelysmallmatterslittle.Ofcourse,whatpeopleacquirewith
aticketismorethanachancetowin;itistherighttodreampleasantlyofwinning.
Thebottomrightcelliswhereinsuranceisbought.Peoplearewillingtopaymuch
moreforinsurancethan expected value—whichishowinsurancecompanies cover
their costs and make their profits. Here again, people buy more than protection
againstanunlikelydisaster;theyeliminateaworryandpurchasepeaceofmind.
The results for the top right cell initially surprised us. We were accustomed to think in
termsofriskaversionexceptforthebottomleftcell,wherelotteriesarepreferred.When
welookedatourchoicesfor badoptions,wequicklyrealizedthatwewere just asrisk
seekinginthedomainoflossesaswewereriskaverseinthedomainofgains.Wewere
not the first to observe risk seeking with negative prospects—at least two authors had
reportedthatfact,buttheyhadnotmademuchofit.However,wewerefortunatetohavea
frameworkthatmadethefindingofriskseekingeasytointerpret,andthatwasamilestone
inourthinking.Indeed,weidentifiedtworeasonsforthiseffect.
First, there is diminishing sensitivity. The sure loss is very aversive because the
reactiontoalossof$900ismorethan90%asintenseasthereactiontoalossof$1,000.
Thesecondfactormaybeevenmorepowerful:thedecisionweightthatcorrespondstoa
probabilityof90%isonlyabout71,muchlowerthantheprobability.Theresultisthat
whenyouconsiderachoicebetweenasurelossandagamblewithahighprobabilityo
BimaatyoBimfalargerloss,diminishingsensitivitymakesthesurelossmoreaversive,
and the certainty effect reduces the aversiveness of the gamble. The same two factors
enhancetheattractiveness ofthesure thingandreduce theattractivenessof thegamble
whentheoutcomesarepositive.
The shape of the value function and the decision weights both contribute to the
patternobservedinthetoprowoftable13.Inthebottomrow,however,thetwofactors
operateinoppositedirections:diminishingsensitivitycontinuestofavorriskaversionfor
gainsand riskseeking for losses,but theoverweighting oflow probabilities overcomes
thiseffectandproducestheobservedpatternofgamblingforgainsandcautionforlosses.
Manyunfortunatehumansituationsunfoldinthetoprightcell.Thisiswherepeople
whofaceverybadoptionstakedesperategambles,acceptingahighprobabilityofmaking
thingsworseinexchangeforasmallhopeofavoidingalargeloss.Risktakingofthiskind
oftenturnsmanageablefailuresintodisasters.Thethoughtofacceptingthelargesureloss
istoopainful,andthehopeofcompleterelieftooenticing,tomakethesensibledecision
that it is time to cut one’s losses. This is where businesses that are losing ground to a
superiortechnologywastetheirremainingassetsinfutileattemptstocatchup.Because
defeatissodifficulttoaccept,thelosingsideinwarsoftenfightslongpastthepointat
whichthevictoryoftheothersideiscertain,andonlyamatteroftime.
GamblingintheShadowoftheLaw
The legal scholar Chris Guthrie has offered a compelling application of the fourfold
patterntotwosituationsinwhichtheplaintiffandthedefendantinacivilsuitconsidera
possiblesettlement.Thesituationsdifferinthestrengthoftheplaintiffscase.
Asinascenariowesawearlier,youaretheplaintiffinacivilsuitinwhichyouhave
madeaclaimforalargesumindamages.Thetrialisgoingverywellandyourlawyer
cites expert opinion that you have a 95% chance to win outright, but adds the caution,
“Youneverreallyknowtheoutcomeuntilthejurycomesin.”Yourlawyerurgesyouto
acceptasettlementinwhichyoumightgetonly90%ofyourclaim.Youareinthetopleft
cellofthefourfoldpattern,andthequestiononyourmindis,“AmIwillingtotakeevena
smallchanceofgettingnothingatall?Even90%oftheclaimisagreatdealofmoney,
andIcan walkawaywith it now.” Twoemotionsare evoked,bothdriving in thesame
direction: the attraction of a sure (and substantial) gain and the fear of intense
disappointmentand regretif youreject asettlement and lose incourt. Youcan feel the
pressure that typically leads to cautious behavior in this situation. The plaintiff with a
strongcaseislikelytoberiskaverse.
Nowstepintotheshoesofthedefendantinthesamecase.Althoughyouhavenot
completelygivenuphopeofadecisioninyourfavor,yourealizethatthetrialisgoing
poorly.Theplaintiffslawyershaveproposedasettlementinwhichyouwouldhavetopay
90%oftheiroriginalclaim,anditiscleartheywillnotacceptless.Willyousettle,orwill
youpursuethecase?Becauseyoufaceahighprobabilityofaloss,yoursituationbelongs
inthetoprightcell.Thetemptationtofightonisstrong:thesettlementthattheplaintiff
hasofferedisalmostaspainfulastheworstoutcomeyouface,andthereisstillhopeof
prevailingincourt.Hereagain,twoemotionsareinvolved:thesurelossisrepugnantand
thepossibilityofwinningincourtishighlyattractive.Adefendantwithaweakcaseis
likelyto berisk seeking,Bima aing,Bim preparedto gamblerather thanaccept avery
unfavorablesettlement.Intheface-offbetweenarisk-averseplaintiffandarisk-seeking
defendant,thedefendantholdsthestrongerhand.Thesuperiorbargainingpositionofthe
defendantshouldbereflectedinnegotiatedsettlements,withtheplaintiffsettlingforless
than the statistically expected outcome of the trial. This prediction from the fourfold
patternwasconfirmedbyexperimentsconductedwithlawstudentsandpracticingjudges,
andalsobyanalysesofactualnegotiationsintheshadowofciviltrials.
Nowconsider“frivolouslitigation,”whenaplaintiffwithaflimsycasefilesalarge
claimthatismostlikelytofailincourt.Bothsidesareawareoftheprobabilities,andboth
know that in a negotiated settlement the plaintiff will get only a small fraction of the
amount of the claim. The negotiation is conducted in the bottom row of the fourfold
pattern. The plaintiff is in the left-hand cell, with a small chance to win a very large
amount;thefrivolousclaimisalotteryticketforalargeprize.Overweightingthesmall
chanceofsuccessisnaturalinthissituation,leadingtheplaintifftobeboldandaggressive
inthenegotiation.Forthedefendant,thesuitisanuisancewithasmallriskofaverybad
outcome.Overweightingthesmallchanceofalargelossfavorsriskaversion,andsettling
foramodestamountisequivalenttopurchasinginsuranceagainsttheunlikelyeventofa
badverdict.Theshoeisnowontheotherfoot:theplaintiffiswillingtogambleandthe
defendant wants to be safe. Plaintiffs with frivolous claims are likely to obtain a more
generoussettlementthanthestatisticsofthesituationjustify.
Thedecisionsdescribedbythefourfoldpatternarenotobviouslyunreasonable.You
canempathizeineachcasewiththefeelingsoftheplaintiffandthedefendantthatlead
them to adopt a combative or an accommodating posture. In the long run, however,
deviationsfromexpectedvaluearelikelytobecostly.Consideralargeorganization,the
CityofNewYork,andsupposeitfaces200“frivolous”suitseachyear,eachwitha5%
chancetocostthecity$1million.Supposefurtherthatineachcasethecitycouldsettle
thelawsuitforapaymentof$100,000.Thecityconsiderstwoalternativepoliciesthatit
willapplytoallsuchcases:settleorgototrial.(Forsimplicity,Iignorelegalcosts.)
Ifthecitylitigatesall200cases,itwilllose10,foratotallossof$10million.
Ifthecitysettleseverycasefor$100,000,itstotallosswillbe$20million.
When you take the long view of many similar decisions, you can see that paying a
premiumtoavoidasmallriskofalargelossiscostly.Asimilaranalysisappliestoeachof
thecellsofthefourfoldpattern:systematicdeviationsfromexpectedvaluearecostlyin
the long run—and this rule applies to both risk aversion and risk seeking. Consistent
overweighting of improbable outcomes—a feature of intuitive decision making—
eventuallyleadstoinferioroutcomes.
SpeakingOfTheFourfoldPattern
“Heistemptedtosettlethisfrivolousclaimtoavoidafreakloss,howeverunlikely.
That’soverweightingofsmallprobabilities.Sinceheislikelytofacemanysimilar
problems,hewouldbebetteroffnotyielding.”
“WeneverletourvacationshangBimaaangBimonalast-minutedeal.We’rewilling
topayalotforcertainty.”
“Theywillnotcuttheirlossessolongasthereisachanceofbreakingeven.Thisis
risk-seekinginthelosses.”
“Theyknowtheriskofagasexplosionisminuscule,buttheywantitmitigated.It’sa
possibilityeffect,andtheywantpeaceofmind.”
P
RareEvents
I visited Israel several times during a period in which suicide bombings in buses were
relativelycommon—thoughofcoursequiterareinabsoluteterms.Therewerealtogether
23bombingsbetweenDecember2001andSeptember2004,whichhadcausedatotalof
236fatalities.ThenumberofdailybusridersinIsraelwasapproximately1.3millionat
thattime.Foranytraveler,therisksweretiny,butthatwasnothowthepublicfeltaboutit.
Peopleavoidedbusesasmuchastheycould,andmanytravelersspenttheirtimeonthe
bus anxiously scanning their neighbors for packages or bulky clothes that might hide a
bomb.
Ididnothavemuchoccasiontotravelonbuses,asIwasdrivingarentedcar,butI
waschagrinedtodiscoverthatmybehaviorwasalsoaffected.IfoundthatIdidnotliketo
stopnexttoabusataredlight,andIdroveawaymorequicklythanusualwhenthelight
changed.Iwasashamedofmyself,becauseofcourseIknewbetter.Iknewthattherisk
wastrulynegligible,andthatanyeffectatallonmyactionswouldassignaninordinately
high“decisionweight”toaminusculeprobability.Infact,Iwasmorelikelytobeinjured
in a driving accident than by stopping near a bus. But my avoidance of buses was not
motivatedbya rational concernforsurvival.What drovemewas the experienceofthe
moment: being next to a bus made me think of bombs, and these thoughts were
unpleasant.IwasavoidingbusesbecauseIwantedtothinkofsomethingelse.
Myexperienceillustrateshowterrorismworksandwhyitissoeffective:itinducesan
availabilitycascade.Anextremelyvividimageofdeathanddamage,constantlyreinforced
bymediaattentionandfrequentconversations,becomeshighlyaccessible,especiallyifit
isassociatedwithaspecificsituationsuchasthesightofabus.Theemotionalarousalis
associative,automatic,anduncontrolled,anditproducesanimpulseforprotectiveaction.
System2may“know”thattheprobabilityislow,butthisknowledgedoesnoteliminate
theself-generateddiscomfortandthewishtoavoidit.System1cannotbeturnedoff.The
emotionisnotonlydisproportionatetotheprobability,itisalsoinsensitivetotheexact
level of probability. Suppose that two cities have been warned about the presence of
suicide bombers. Residents of one city are told that two bombers are ready to strike.
Residentsofanothercityaretoldofasinglebomber.Theirriskislowerbyhalf,butdo
theyfeelmuchsafer?
ManystoresinNewYorkCityselllotterytickets,andbusinessisgood.Thepsychology
ofhigh-prizelotteriesissimilartothepsychologyofterrorism.Thethrillingpossibilityof
winningthebigprizeissharedbythecommunityandreCmuninforcedbyconversations
atworkandathome.Buyingaticketisimmediatelyrewardedbypleasantfantasies,just
asavoidingabuswasimmediatelyrewardedbyrelieffromfear.Inbothcases,theactual
probability is inconsequential; only possibility matters. The original formulation of
prospecttheoryincludedtheargumentthat“highlyunlikelyeventsareeitherignoredor
overweighted,” but it did not specify the conditions under which one or the other will
occur,nordiditproposeapsychologicalinterpretationofit.Mycurrentviewofdecision
weights has been strongly influenced by recent research on the role of emotions and
vividnessindecisionmaking.OverweightingofunlikelyoutcomesisrootedinSystem1
featuresthat arefamiliar bynow.Emotion and vividness influence fluency, availability,
andjudgmentsofprobability—andthusaccountforourexcessiveresponsetothefewrare
eventsthatwedonotignore.
OverestimationandOverweighting
WhatisyourjudgmentoftheprobabilitythatthenextpresidentoftheUnitedStates
willbeathird-partycandidate?
Howmuchwillyoupayforabetinwhichyoureceive$1,000ifthenextpresidentof
theUnitedStatesisathird-partycandidate,andnomoneyotherwise?
The two questions are different but obviously related. The first asks you to assess the
probabilityofanunlikelyevent.Thesecondinvitesyoutoputadecisionweightonthe
sameevent,byplacingabetonit.
Howdopeoplemakethe judgments andhowdotheyassign decision weights?We
startfromtwosimpleanswers,thenqualifythem.Herearetheoversimplifiedanswers:
Peopleoverestimatetheprobabilitiesofunlikelyevents.
Peopleoverweightunlikelyeventsintheirdecisions.
Although overestimation and overweighting are distinct phenomena, the same
psychologicalmechanismsareinvolvedinboth:focusedattention,confirmationbias,and
cognitiveease.
Specific descriptions trigger the associative machinery of System 1. When you
thought about the unlikely victory of a third-party candidate, your associative system
worked in its usual confirmatory mode, selectively retrieving evidence, instances, and
images that would make the statement true. The process was biased, but it was not an
exerciseinfantasy.Youlookedforaplausiblescenariothatconformstotheconstraintsof
reality;youdidnotsimplyimaginetheFairyoftheWestinstallingathird-partypresident.
Yourjudgmentofprobabilitywasultimatelydeterminedbythecognitiveease,orfluency,
withwhichaplausiblescenariocametomind.
Youdonotalwaysfocusontheeventyouareaskedtoestimate.Ifthetargeteventis
verylikely,youfocusonitsalternative.Considerthisexample:
Whatistheprobabilitythatababyborninyourlocalhospitalwillbereleasedwithin
threedays?
You were asked to estimate the probability of the baby going home, but you almost
certainly focused on the events that might cause a baby not to be released within the
normalperiod.OurmindhasausefulcapabilitytoBmunqtoBmufocusspontaneouslyon
whateverisodd,different,orunusual.Youquicklyrealizedthatitisnormalforbabiesin
theUnitedStates(notallcountrieshavethesamestandards)tobereleasedwithintwoor
threedaysofbirth,soyourattentionturnedtotheabnormalalternative.Theunlikelyevent
became focal. The availability heuristic is likely to be evoked: your judgment was
probablydeterminedbythenumberofscenariosofmedicalproblemsyouproducedand
bytheeasewithwhichtheycametomind.Becauseyouwereinconfirmatorymode,there
isagoodchancethatyourestimateofthefrequencyofproblemswastoohigh.
Theprobabilityofarareeventismostlikelytobeoverestimatedwhenthealternative
isnotfullyspecified.MyfavoriteexamplecomesfromastudythatthepsychologistCraig
FoxconductedwhilehewasAmos’sstudent.Foxrecruitedfansofprofessionalbasketball
andelicitedseveraljudgmentsanddecisionsconcerningthewinneroftheNBAplayoffs.
Inparticular,heaskedthemtoestimatetheprobabilitythateachoftheeightparticipating
teamswouldwintheplayoff;thevictoryofeachteaminturnwasthefocalevent.
You can surely guess what happened, but the magnitude of the effect that Fox
observedmaysurpriseyou.Imagineafanwhohasbeenaskedtoestimatethechancesthat
the Chicago Bulls will win the tournament. The focal event is well defined, but its
alternative—one of the other seven teams winning—is diffuse and less evocative. The
fan’smemoryandimagination,operatinginconfirmatorymode,aretryingtoconstructa
victory for the Bulls. When the same person is next asked to assess the chances of the
Lakers, the same selective activation will work in favor of that team. The eight best
professionalbasketballteamsintheUnitedStatesareallverygood,anditispossibleto
imagineevenarelativelyweakteamamongthememergingaschampion.Theresult:the
probabilityjudgmentsgeneratedsuccessivelyfortheeightteamsaddedupto240%!This
patternisabsurd,ofcourse,becausethesumofthechancesoftheeighteventsmustadd
up to 100%. The absurdity disappeared when the same judges were asked whether the
winner would be from the Eastern or the Western conference. The focal event and its
alternativewereequallyspecificinthatquestionandthejudgmentsoftheirprobabilities
addedupto100%.
To assess decision weights, Fox also invited the basketball fans to bet on the
tournamentresult.Theyassignedacashequivalenttoeachbet(acashamountthatwas
justasattractiveasplayingthebet).Winningthebetwouldearnapayoffof$160.The
sum of the cash equivalents for the eight individual teams was $287. An average
participantwhotookalleightbetswouldbeguaranteedalossof$127!Theparticipants
surelyknewthattherewereeightteamsinthetournamentandthattheaveragepayofffor
bettingonallofthemcouldnotexceed$160,buttheyoverweightednonetheless.Thefans
not only overestimated the probability of the events they focused on—they were also
muchtoowillingtobetonthem.
These findings shed new light on the planning fallacy and other manifestations of
optimism.Thesuccessfulexecutionofaplanisspecificand easy to imaginewhenone
triestoforecasttheoutcomeofaproject.Incontrast,thealternativeoffailureisdiffuse,
because there are innumerable ways for things to go wrong. Entrepreneurs and the
investorswhoevaluatetheirprospectsarepronebothtooverestimatetheirchancesandto
overweighttheirestimates.
VividOutcomes
As we have seen, prospect theory differs from utility theory in the rel Bmun q rel
Bmuationship it suggests between probability and decision weight. In utility theory,
decision weights and probabilities are the same. The decision weight of a sure thing is
100,andtheweightthatcorrespondstoa90%chanceisexactly90,whichis9timesmore
thanthedecisionweight for a 10% chance.In prospecttheory,variationsofprobability
havelesseffectondecisionweights.AnexperimentthatImentionedearlierfoundthatthe
decisionweightfora90%chancewas71.2andthedecisionweightfora10%chancewas
18.6.Theratiooftheprobabilitieswas9.0,buttheratioofthedecisionweightswasonly
3.83, indicating insufficient sensitivity to probability in that range. In both theories, the
decision weights depend only on probability, not on the outcome. Both theories predict
thatthedecisionweightfora90%chanceisthesameforwinning$100,receivingadozen
roses,orgettinganelectricshock.Thistheoreticalpredictionturnsouttobewrong.
PsychologistsattheUniversityofChicagopublishedanarticlewiththeattractivetitle
“Money,Kisses,andElectricShocks:OntheAffectivePsychologyofRisk.”Theirfinding
was that the valuation of gambles was much less sensitive to probability when the
(fictitious)outcomeswereemotional(“meetingandkissingyourfavoritemoviestar”or
“gettingapainful,butnotdangerous,electricshock”)thanwhentheoutcomesweregains
or losses of cash. This was not an isolated finding. Other researchers had found, using
physiologicalmeasuressuchasheartrate,thatthefearofanimpendingelectricshockwas
essentiallyuncorrelatedwiththeprobabilityofreceivingtheshock.Themerepossibility
ofashocktriggeredthefull-blownfearresponse.TheChicagoteamproposedthat“affect-
laden imagery” overwhelmed the response to probability. Ten years later, a team of
psychologistsatPrincetonchallengedthatconclusion.
The Princeton team argued that the low sensitivity to probability that had been
observed for emotional outcomes is normal. Gambles on money are the exception. The
sensitivitytoprobabilityisrelativelyhighforthesegambles,becausetheyhaveadefinite
expectedvalue.
Whatamountofcashisasattractiveaseachofthesegambles?
A.84%chancetowin$59
B.84%chancetoreceiveonedozenredrosesinaglassvase
Whatdoyounotice?ThesalientdifferenceisthatquestionAismucheasierthanquestion
B. You did not stop to compute the expected value of the bet, but you probably knew
quickly that it is not far from $50 (in fact it is $49.56), and the vague estimate was
sufficienttoprovideahelpfulanchorasyousearchedforanequallyattractivecashgift.
No such anchor is available for question B, which is therefore much harder to answer.
Respondentsalsoassessedthecashequivalentofgambleswitha21%chancetowinthe
two outcomes. As expected, the difference between the high-probability and low-
probabilitygambleswasmuchmorepronouncedforthemoneythanfortheroses.
Tobolstertheir argument thatinsensitivitytoprobabilityis notcausedbyemotion,
thePrincetonteamcomparedwillingnesstopaytoavoidgambles:
21%chance(or84%chance)tospendaweekendpaintingsomeone’sthree-bedroom
apartment
21%chance(or84%chance)tocleanthreestallsinadormitorybathBmunqbath
Bmuroomafteraweekendofuse
The second outcome is surely much more emotional than the first, but the decision
weightsforthetwooutcomesdidnotdiffer.Evidently,theintensityofemotionisnotthe
answer.
Another experiment yielded a surprising result. The participants received explicit
priceinformationalongwiththeverbaldescriptionoftheprize.Anexamplecouldbe:
84%chancetowin:Adozenredrosesinaglassvase.Value$59.
21%chancetowin:Adozenredrosesinaglassvase.Value$59.
Itiseasytoassesstheexpectedmonetaryvalueofthesegambles,butaddingaspecific
monetary value did not alter the results: evaluations remained insensitive to probability
eveninthatcondition.Peoplewhothoughtofthegiftasachancetogetrosesdidnotuse
priceinformationasananchorinevaluatingthegamble.Asscientistssometimessay,this
isasurprisingfindingthatistryingtotellussomething.Whatstoryisittryingtotellus?
Thestory,Ibelieve,isthatarichandvividrepresentationoftheoutcome,whetheror
not it is emotional, reduces the role of probability in the evaluation of an uncertain
prospect. This hypothesis suggests a prediction, in which I have reasonably high
confidence: adding irrelevant but vivid details to a monetary outcome also disrupts
calculation.Compareyourcashequivalentsforthefollowingoutcomes:
21%(or84%)chancetoreceive$59nextMonday
21%(or84%)chancetoreceivealargebluecardboardenvelopecontaining$59next
Mondaymorning
Thenewhypothesisisthattherewillbelesssensitivitytoprobabilityinthesecondcase,
becausetheblueenvelopeevokesaricherandmorefluentrepresentationthantheabstract
notionofasumofmoney.Youconstructedtheeventinyourmind,andthevividimageof
the outcome exists there even if you know that its probability is low. Cognitive ease
contributestothecertaintyeffectaswell:whenyouholdavividimageofanevent,the
possibility of its not occurring is also represented vividly, and overweighted. The
combination of an enhanced possibility effect with an enhanced certainty effect leaves
littleroomfordecisionweightstochangebetweenchancesof21%and84%.
VividProbabilities
Theideathatfluency,vividness,andtheeaseofimaginingcontributetodecisionweights
gainssupportfrommanyotherobservations.Participantsinawell-knownexperimentare
given a choice of drawing a marble from one of two urns, in which red marbles win a
prize:
UrnAcontains10marbles,ofwhich1isred.
UrnBcontains100marbles,ofwhich8arered.
Whichurnwouldyouchoose?Thechancesofwinningare10%inurnAand8%inurnB,
so making the right choice should be easy, but it is not: about 30%–40% of students
choosetheurnBmunqurnBmuwiththelargernumberofwinningmarbles,ratherthan
the urn that provides a better chance of winning. Seymour Epstein has argued that the
resultsillustratethesuperficialprocessingcharacteristicofSystem1(whichhecallsthe
experientialsystem).
As you might expect, the remarkably foolish choices that people make in this
situationhaveattractedtheattentionofmanyresearchers.Thebiashasbeengivenseveral
names;followingPaulSlovicIwillcallitdenominatorneglect.Ifyourattentionisdrawn
to the winning marbles, you do not assess the number of nonwinning marbles with the
samecare.Vividimagerycontributestodenominatorneglect,atleastasIexperienceit.
WhenIthinkofthesmallurn,Iseeasingleredmarbleonavaguelydefinedbackground
ofwhitemarbles.WhenIthinkofthelargerurn,Iseeeightwinningredmarblesonan
indistinct background of white marbles, which creates a more hopeful feeling. The
distinctivevividnessofthewinningmarblesincreasesthedecisionweightofthatevent,
enhancingthepossibilityeffect.Ofcourse,thesamewillbetrueofthecertaintyeffect.IfI
havea90%chanceofwinningaprize,theeventofnotwinningwillbemoresalientif10
of100marblesare“losers”thanif1of10marblesyieldsthesameoutcome.
Theideaofdenominatorneglecthelpsexplainwhydifferentwaysofcommunicating
risksvarysomuchintheireffects.Youreadthat“avaccinethatprotectschildrenfroma
fataldiseasecarriesa0.001%riskofpermanentdisability.”Theriskappearssmall.Now
consideranotherdescriptionofthesamerisk:“Oneof100,000vaccinatedchildrenwillbe
permanentlydisabled.”Thesecondstatementdoessomethingtoyourmindthatthefirst
doesnot:itcallsupthe image ofanindividualchildwhoispermanentlydisabled by a
vaccine; the 999,999 safely vaccinated children have faded into the background. As
predictedbydenominatorneglect,low-probabilityeventsaremuchmoreheavilyweighted
when described in terms of relative frequencies (how many) than when stated in more
abstract terms of “chances,” “risk,” or “probability” (how likely). As we have seen,
System1ismuchbetteratdealingwithindividualsthancategories.
Theeffectofthefrequencyformatislarge.Inonestudy,peoplewhosawinformation
about“adiseasethatkills1,286peopleoutofevery10,000”judgeditasmoredangerous
thanpeoplewhoweretoldabout“adiseasethatkills24.14%ofthepopulation.”Thefirst
diseaseappearsmorethreateningthanthesecond,althoughtheformerriskisonlyhalfas
large as the latter! In an even more direct demonstration of denominator neglect, “a
diseasethatkills1,286 peopleoutof every 10,000”wasjudged moredangerousthana
diseasethat“kills24.4outof100.”Theeffectwouldsurelybereducedoreliminatedif
participants were asked for a direct comparison of the two formulations, a task that
explicitlycallsforSystem2.Life,however,isusuallyabetween-subjectsexperiment,in
which you see only one formulation at a time. It would take an exceptionally active
System2togeneratealternativeformulationsoftheoneyouseeandtodiscoverthatthey
evokeadifferentresponse.
Experiencedforensicpsychologistsandpsychiatristsarenotimmunetotheeffectsof
the format in which risks are expressed. In one experiment, professionals evaluated
whetheritwassafetodischargefromthepsychiatrichospitalapatient,Mr.Jones,witha
historyofviolence.Theinformationtheyreceivedincludedanexpert’sassessmentofthe
risk.Thesamestatisticsweredescribedintwoways:
PatientssimilartoMr.Jonesareestimatedtohavea10%probabilityofcommitting
anactofviolenceagainstothersduringthefirstseveralmonthsafterdischarge.
Of every 100 patients similar to Mr. Jones, 10 are estimated to commit an act of
violenceagainstothersduringthefirstseveralmonthsafterdischarge.
Theprofessionalswhosawthefrequencyformatwerealmosttwiceaslikelytodenythe
discharge(41%,comparedto21%intheprobabilityformat).Themorevividdescription
producesahigherdecisionweightforthesameprobability.
Thepowerofformatcreatesopportunitiesformanipulation,whichpeoplewithanaxe
to grind know how to exploit. Slovic and his colleagues cite an article that states that
“approximately1,000homicidesayeararecommittednationwidebyseriouslymentally
illindividualswhoarenottakingtheirmedication.”Anotherwayofexpressingthesame
fact is that “1,000 out of 273,000,000 Americans will die in this manner each year.”
Another is that “the annual likelihood of being killed by such an individual is
approximately0.00036%.”Stillanother:“1,000Americanswilldieinthismannereach
year,orlessthanone-thirtieththenumberwhowilldieofsuicideandaboutone-fourththe
numberwhowilldieoflaryngealcancer.”Slovicpointsoutthat“theseadvocatesarequite
openabouttheirmotivation:they want tofrighten thegeneral publicaboutviolence by
peoplewithmentaldisorder,inthehopethatthisfearwilltranslateintoincreasedfunding
formentalhealthservices.”
AgoodattorneywhowishestocastdoubtonDNAevidencewillnottellthejurythat
“thechanceofafalsematchis0.1%.”Thestatementthat“afalsematchoccursin1of
1,000capitalcases”isfarmorelikelytopassthethresholdofreasonabledoubt.Thejurors
hearingthosewordsareinvitedtogeneratetheimageofthemanwhositsbeforethemin
thecourtroombeingwronglyconvictedbecauseofflawedDNAevidence.Theprosecutor,
of course, will favor the more abstract frame—hoping to fill the jurors’ minds with
decimalpoints.
DecisionsfromGlobalImpressions
Theevidencesuggeststhehypothesisthatfocalattentionandsaliencecontributetoboth
the overestimation of unlikely events and the overweighting of unlikely outcomes.
Salienceisenhancedbymerementionofanevent,byitsvividness,andbytheformatin
whichprobabilityisdescribed.Thereareexceptions,ofcourse,inwhichfocusingonan
eventdoesnot raiseitsprobability:casesinwhichanerroneoustheorymakesanevent
appearimpossibleevenwhenyouthinkaboutit,orcasesinwhichaninabilitytoimagine
howanoutcomemightcomeaboutleavesyouconvincedthatitwillnothappen.Thebias
towardoverestimationandoverweightingofsalienteventsisnotanabsoluterule,butitis
largeandrobust.
There has been much interest in recent years in studies of choice from experience,
which follow different rules from the choices from description that are analyzed in
prospecttheory.Participantsinatypicalexperimentfacetwobuttons.Whenpressed,each
buttonproduceseitheramonetaryrewardornothing,andtheoutcomeisdrawnrandomly
according to the specifications of a prospect (for example, “5% to win $12” or “95%
chance to win $1”). The process is truly random, s Bmun qm, s Bmuo there is no
guarantee that the sample a participant sees exactly represents the statistical setup. The
expectedvaluesassociatedwiththetwobuttonsareapproximatelyequal,butoneisriskier
(morevariable)thantheother.(Forexample,onebuttonmayproduce$10on5%ofthe
trialsandtheother$1on50%ofthetrials).Choicefromexperienceisimplementedby
exposing the participant to many trials in which she can observe the consequences of
pressingonebuttonoranother.Onthecriticaltrial,shechoosesoneofthetwobuttons,
andsheearnstheoutcomeonthattrial.Choicefromdescriptionisrealizedbyshowingthe
subjecttheverbaldescriptionoftheriskyprospectassociatedwitheachbutton(suchas
“5%towin$12”)andaskinghertochooseone.Asexpectedfromprospecttheory,choice
from description yields a possibility effect—rare outcomes are overweighted relative to
their probability. In sharp contrast, overweighting is never observed in choice from
experience,andunderweightingiscommon.
The experimental situation of choice by experience is intended to represent many
situations in which we are exposed to variable outcomes from the same source. A
restaurantthatisusuallygoodmayoccasionallyserveabrilliantoranawfulmeal.Your
friendisusuallygoodcompany,buthesometimesturnsmoodyandaggressive.California
ispronetoearthquakes,buttheyhappenrarely.Theresultsofmanyexperimentssuggest
that rare events are not overweighted when we make decisions such as choosing a
restaurantortyingdowntheboilertoreduceearthquakedamage.
The interpretation of choice from experience is not yet settled, but there is general
agreementononemajorcauseofunderweightingofrareevents,bothinexperimentsand
inthe realworld:many participantsnever experiencetherare event!Most Californians
have never experienced a major earthquake, and in 2007 no banker had personally
experiencedadevastatingfinancialcrisis.RalphHertwigandIdoErevnotethat“chances
ofrareevents(suchastheburstofhousingbubbles)receivelessimpactthantheydeserve
according to their objective probabilities.” They point to the public’s tepid response to
long-termenvironmentalthreatsasanexample.
These examples of neglect are both important and easily explained, but
underweighting also occurs when people have actually experienced the rare event.
Suppose you have a complicated question that two colleagues on your floor could
probablyanswer.Youhaveknownthembothforyearsandhavehadmanyoccasionsto
observe and experience their character. Adele is fairly consistent and generally helpful,
though not exceptional on that dimension. Brian is not quite as friendly and helpful as
Adelemostofthetime,butonsomeoccasionshehasbeenextremelygenerouswithhis
timeandadvice.Whomwillyouapproach?
Considertwopossibleviewsofthisdecision:
Itisachoicebetweentwogambles.Adeleisclosertoasurething;theprospectof
Brianismorelikelytoyieldaslightlyinferioroutcome,withalowprobabilityofa
verygoodone.Therareeventwillbeoverweightedbyapossibilityeffect,favoring
Brian.
ItisachoicebetweenyourglobalimpressionsofAdeleandBrian.Thegoodandthe
bad experiences you have had are pooled in your representation of their normal
behavior.Unlesstherareeventissoextremethatitcomestomindseparately(Brian
onceverballyabusedacolleaguewhoaskedforhishelp),thenormwillbebiased
towardtypicalandrecentinstances,favoringAdele.
In a two-system mind, the second interpretation a Bmun qon a Bmuppears far more
plausible.System1generatesglobalrepresentationsofAdeleandBrian,whichincludean
emotionalattitudeandatendencytoapproachoravoid.Nothingbeyondacomparisonof
thesetendenciesisneededtodeterminethedooronwhichyouwillknock.Unlesstherare
eventcomestoyourmindexplicitly,itwillnotbeoverweighted.Applyingthesameidea
to the experiments on choice from experience is straightforward. As they are observed
generating outcomes over time, the two buttons develop integrated “personalities” to
whichemotionalresponsesareattached.
The conditions under which rare events are ignored or overweighted are better
understoodnowthantheywerewhenprospecttheorywasformulated.Theprobabilityofa
rareeventwill(often,notalways)beoverestimated,becauseoftheconfirmatorybiasof
memory.Thinkingaboutthatevent,youtrytomakeittrueinyourmind.Arareeventwill
be overweighted if it specifically attracts attention. Separate attention is effectively
guaranteedwhenprospectsaredescribedexplicitly(“99%chancetowin$1,000,and1%
chance to win nothing”). Obsessive concerns (the bus in Jerusalem), vivid images (the
roses), concrete representations (1 of 1,000), and explicit reminders (as in choice from
description)all contributeto overweighting.And whenthere isno overweighting,there
willbeneglect.Whenitcomestorareprobabilities,ourmindisnotdesignedtogetthings
quite right. For the residents of a planet that may be exposed to events no one has yet
experienced,thisisnotgoodnews.
SpeakingofRareEvents
“TsunamisareveryrareeveninJapan,buttheimageissovividandcompellingthat
touristsareboundtooverestimatetheirprobability.”
“It’s the familiar disaster cycle. Begin by exaggeration and overweighting, then
neglectsetsin.”
“We shouldn’t focus on a single scenario, or we will overestimate its probability.
Let’ssetupspecificalternativesandmaketheprobabilitiesaddupto100%.”
“Theywantpeopletobeworriedbytherisk.That’swhytheydescribeitas1death
per1,000.They’recountingondenominatorneglect.”
P
RiskPolicies
Imagine that you face the following pair of concurrent decisions. First examine both
decisions,thenmakeyourchoices.
Decision(i):Choosebetween
A.suregainof$240
B.25%chancetogain$1,000and75%chancetogainnothing
Decision(ii):Choosebetween
C.surelossof$750
D.75%chancetolose$1,000and25%chancetolosenothing
Thispairofchoiceproblemshasanimportantplaceinthehistoryofprospecttheory,and
it has new things to tell us about rationality. As you skimmed the two problems, your
initialreactiontothesurethings(AandC)wasattractiontothefirstandaversiontothe
second.Theemotionalevaluationof“suregain”and“sureloss”isanautomaticreaction
ofSystem1,whichcertainlyoccursbeforethemoreeffortful(andoptional)computation
of the expected values of the two gambles (respectively, a gain of $250 and a loss of
$750). Most people’s choices correspond to the predilections of System 1, and large
majoritiespreferAtoBandDtoC.Asinmanyotherchoicesthatinvolvemoderateor
highprobabilities,peopletendtoberiskaverseinthedomainofgainsandriskseekingin
the domain of losses. In the original experiment that Amos and I carried out, 73% of
respondents chose A in decision i and D in decision ii and only 3% favored the
combinationofBandC.
You were asked to examine both options before making your first choice, and you
probablydidso.Butonethingyousurelydidnotdo:youdidnotcomputethepossible
results of the four combinations of choices (A and C, A and D, B and C, B and D) to
determine which combination you like best. Your separate preferences for the two
problemswereintuitivelycompellingandtherewasnoreasontoexpectthattheycould
leadtotrouble.Furthermore,combiningthetwodecisionproblemsisalaboriousexercise
thatyouwouldneedpaperandpenciltocomplete.Youdidnotdoit.Nowconsiderthe
followingchoiceproblem:
AD.25%chancetowin$240and75%chancetolose$760
BC.25%chancetowin$250and75%chancetolose$750
Thischoiceiseasy!OptionBCactuallydominatesoptionAD(thetechnicaltermforone
optionbeingunequivocallybetterthananother).Youalreadyknowwhatcomesnext.The
dominantoptioninADisthecombinationofthetworejectedoptionsinthefirstpairof
decisionproblems,theonethatonly3%ofrespondentsfavoredinouroriginalstudy.The
inferioroptionBCwaspreferredby73%ofrespondents.
BroadorNarrow?
Thissetofchoiceshasalottotellusaboutthelimitsofhumanrationality.Foronething,
ithelps us see the logicalconsistency of Human preferences forwhat it is—a hopeless
mirage.Haveanotherlookatthelastproblem,theeasyone.Wouldyouhaveimaginedthe
possibilityofdecomposingthisobviouschoiceproblemintoapairofproblemsthatwould
leadalargemajorityofpeopletochooseaninferioroption?Thisisgenerallytrue:every
simplechoiceformulatedintermsofgainsandlossescanbedeconstructedininnumerable
waysintoacombinationofchoices,yieldingpreferencesthatarelikelytobeinconsistent.
Theexamplealsoshowsthatitiscostlytoberiskaverseforgainsandriskseeking
forlosses.Theseattitudesmakeyouwillingtopayapremiumtoobtainasuregainrather
thanfaceagamble,andalsowillingtopayapremium(inexpectedvalue)toavoidasure
loss. Both payments come out of the same pocket, and when you face both kinds of
problemsatonce,thediscrepantattitudesareunlikelytobeoptimal.
ThereweretwBghthecomeoowaysofconstruingdecisionsiandii:
narrowframing:asequenceoftwosimpledecisions,consideredseparately
broadframing:asinglecomprehensivedecision,withfouroptions
Broadframingwasobviouslysuperiorinthiscase.Indeed,itwillbesuperior(oratleast
not inferior) in every case in which several decisions are to be contemplated together.
Imaginealongerlistof5simple(binary)decisionstobeconsideredsimultaneously.The
broad(comprehensive)frameconsistsofasinglechoicewith32options.Narrowframing
willyieldasequenceof5simplechoices.Thesequenceof5choiceswillbeoneofthe32
optionsof the broad frame. Will it be the best?Perhaps, butnot very likely. Arational
agentwillofcourseengageinbroadframing,butHumansarebynaturenarrowframers.
The ideal of logical consistency, as this example shows, is not achievable by our
limitedmind.BecausewearesusceptibletoWYSIATIandaversetomentaleffort,we
tend to make decisions as problems arise, even when we are specifically instructed to
considerthemjointly.Wehaveneithertheinclinationnorthementalresourcestoenforce
consistencyonourpreferences,andourpreferencesarenotmagicallysettobecoherent,
astheyareintherational-agentmodel.
Samuelson’sProblem
The great Paul Samuelson—a giant among the economists of the twentieth century—
famouslyaskedafriendwhetherhewouldacceptagambleonthetossofacoininwhich
hecouldlose$100orwin$200.Hisfriendresponded,“Iwon’tbetbecauseIwouldfeel
the$100lossmorethanthe$200gain.ButI’lltakeyouonifyoupromisetoletmemake
100 such bets.” Unless you are a decision theorist, you probably share the intuition of
Samuelson’sfriend,thatplayingaveryfavorablebutriskygamblemultipletimesreduces
the subjective risk. Samuelson found his friend’s answer interesting and went on to
analyzeit.Heprovedthatundersomeveryspecificconditions,autilitymaximizerwho
rejectsasinglegambleshouldalsorejecttheofferofmany.
Remarkably, Samuelson did not seem to mind the fact that his proof, which is of
coursevalid,ledtoaconclusionthatviolatescommonsense,ifnotrationality:theofferof
ahundredgamblesissoattractivethatnosanepersonwouldrejectit.MatthewRabinand
Richard Thaler pointed out that “the aggregated gamble of one hundred 50–50 lose
$100/gain $200 bets has an expected return of $5,000, with only a 1/2,300 chance of
losinganymoneyandmerelya1/62,000chanceoflosingmorethan$1,000.”Theirpoint,
ofcourse,isthatifutilitytheorycanbeconsistentwithsuchafoolishpreferenceunder
anycircumstances,thensomethingmustbewrongwithitasamodelofrationalchoice.
SamuelsonhadnotseenRabin’sproofoftheabsurdconsequencesofseverelossaversion
forsmallbets,buthewouldsurelynothavebeensurprisedbyit.Hiswillingnessevento
consider the possibility that it could be rational to reject the package testifies to the
powerfulholdoftherationalmodel.
Let us assume that a very simple value function describes the preferences of
Samuelson’sfriend(callhimSam).ToexpresshisaversiontolossesSamfirstrewritesthe
bet,aftermultiplyingeachlossbyafactorof2.Hethencomputestheexpectedvalueof
therewrittenbet.Herearetheresults,forone,two,orthreetosses.Theyaresufficiently
instructivetodeservesomeBghticiof2
Youcanseeinthedisplaythatthegamblehasanexpectedvalueof50.However,onetoss
isworthnothingtoSambecausehefeelsthatthepainoflosingadollaristwiceasintense
asthepleasureofwinningadollar.Afterrewritingthegambletoreflecthislossaversion,
Samwillfindthatthevalueofthegambleis0.
Nowconsidertwotosses.Thechancesoflosinghavegonedownto25%.Thetwo
extremeoutcomes(lose200orwin400)canceloutinvalue;theyareequallylikely,and
thelossesareweightedtwiceasmuchasthegain.Buttheintermediateoutcome(oneloss,
onegain)ispositive,andsoisthecompoundgambleasawhole.Nowyoucanseethe
cost of narrow framing and the magic of aggregating gambles. Here are two favorable
gambles,whichindividuallyareworthnothingtoSam.Ifheencounterstheofferontwo
separateoccasions,hewillturnitdownbothtimes.However,ifhebundlesthetwooffers
together,theyarejointlyworth$50!
Thingsgetevenbetterwhenthreegamblesarebundled.Theextremeoutcomesstill
cancel out, but they have become less significant. The third toss, although worthless if
evaluatedonitsown,hasadded$62.50tothetotalvalueofthepackage.BythetimeSam
isofferedfive gambles,the expected valueof the offerwill be$250,his probabilityof
losing anything will be 18.75%, and his cash equivalent will be $203.125. The notable
aspect of this story is that Sam never wavers in his aversion to losses. However, the
aggregationoffavorablegamblesrapidlyreducestheprobabilityoflosing,andtheimpact
oflossaversiononhispreferencesdiminishesaccordingly.
NowIhaveasermonreadyforSamifherejectstheofferofasinglehighlyfavorable
gambleplayedonce,andforyouifyousharehisunreasonableaversiontolosses:
Isympathizewithyouraversiontolosinganygamble,butitiscostingyoualotof
money.Pleaseconsiderthisquestion:Areyouonyourdeathbed?Isthisthelastoffer
ofasmallfavorablegamblethatyouwilleverconsider?Ofcourse,youareunlikely
to be offered exactly this gamble again, but you will have many opportunities to
considerattractive gambles withstakes thatare very smallrelative toyour wealth.
You will do yourself a large financial favor if you are able to see each of these
gamblesaspartofabundleofsmallgamblesandrehearsethemantrathatwillget
yousignificantlyclosertoeconomicrationality:youwinafew,youloseafew.The
mainpurposeofthemantraistocontrolyouremotionalresponsewhenyoudolose.
If you can trust it to be effective, you should remind yourself of it when deciding
whetherornottoacceptasmallriskwithpositiveexpectedvalue.Rememberthese
qualificationswhenusingthemantra:
Itworkswhenthegamblesaregenuinelyindependentofeachother;itdoesnotapply
tomultipleinvestmentsinthesameindustry,whichwouldallgobadtogether.
Itworks onlywhenthepossiblelossdoesnotcauseyoutoworryaboutyourtotal
wealth. If you would take the loss as significant bad news about your economic
future,watchit!
Itshouldnotbeappliedtolongshots,wheretheprobabilityofwinningisverysmall
foreachbet.
Ifyouhavetheemotionaldisciplinethatthisrulerequires,Bghtldforeyouwill
neverconsiderasmallgambleinisolationorbelossaverseforasmallgambleuntil
youareactuallyonyourdeathbed—andnoteventhen.
Thisadviceisnotimpossibletofollow.Experiencedtradersinfinancialmarketslive
byiteveryday,shieldingthemselvesfromthepainoflossesbybroadframing.As was
mentionedearlier,wenowknowthatexperimentalsubjectscouldbealmostcuredoftheir
loss aversion (in a particular context) by inducing them to “think like a trader,” just as
experienced baseball card traders are not as susceptible to the endowment effect as
novices are. Students made risky decisions (to accept or reject gambles in which they
couldlose)underdifferentinstructions.Inthenarrow-framingcondition,theyweretoldto
“make each decision as if it were the only one” and to accept their emotions. The
instructionsforbroadframingofadecisionincludedthephrases“imagineyourselfasa
trader,”“youdothisallthetime,”and“treatitasoneofmanymonetarydecisions,which
will sum together to produce a ‘portfolio.’” The experimenters assessed the subjects’
emotionalresponsetogainsandlossesbyphysiologicalmeasures,includingchangesin
theelectrical conductanceof the skin that areused in liedetection. Asexpected, broad
framing blunted the emotional reaction to losses and increased the willingness to take
risks.
The combination of loss aversion and narrow framing is a costly curse. Individual
investorscan avoidthatcurse, achievingthe emotionalbenefitsof broadframing while
alsosavingtimeandagony,byreducingthefrequencywithwhichtheycheckhowwell
theirinvestmentsaredoing.Closelyfollowingdailyfluctuationsisalosingproposition,
becausethepainofthefrequentsmalllossesexceedsthepleasureoftheequallyfrequent
small gains. Once a quarter is enough, and may be more than enough for individual
investors.Inadditiontoimprovingtheemotionalqualityoflife,thedeliberateavoidance
ofexposuretoshort-termoutcomesimprovesthequalityofbothdecisionsandoutcomes.
Thetypicalshort-termreactiontobadnewsisincreasedlossaversion.Investorswhoget
aggregated feedback receive such news much less often and are likely to be less risk
averseandtoendupricher.Youarealsolesspronetouselesschurningofyourportfolioif
youdon’tknowhoweverystockinitisdoingeveryday(oreveryweekorevenevery
month).Acommitmentnottochangeone’spositionforseveralperiods(theequivalentof
“lockingin”aninvestment)improvesfinancialperformance.
RiskPolicies
Decisionmakerswhoarepronetonarrowframingconstructapreferenceeverytimethey
faceariskychoice.Theywoulddobetterbyhavingariskpolicythattheyroutinelyapply
wheneverarelevantproblemarises.Familiarexamplesofriskpoliciesare“alwaystake
the highest possible deductible when purchasing insurance” and “never buy extended
warranties.” A risk policy is a broad frame. In the insurance examples, you expect the
occasionallossoftheentiredeductible,ortheoccasionalfailureofanuninsuredproduct.
Therelevantissueisyourabilitytoreduceoreliminatethepainoftheoccasionallossby
thethoughtthatthepolicythatleftyouexposedtoitwillalmostcertainlybefinancially
advantageousoverthelongrun.
Ariskpolicythataggregatesdecisionsisanalogoustotheoutsideviewofplanning
problemsthatIdiscussedearlier.Theoutsideviewshiftsthefocusfromthespecificsof
thecurrentsituationtoBghtpecicytthestatisticsofoutcomesinsimilarsituations.The
outsideviewisabroadframeforthinkingaboutplans.Ariskpolicyisabroadframethat
embedsaparticularriskychoiceinasetofsimilarchoices.
The outside view and the risk policy are remedies against two distinct biases that
affect many decisions: the exaggerated optimism of the planning fallacy and the
exaggerated caution induced by loss aversion. The two biases oppose each other.
Exaggeratedoptimismprotectsindividualsandorganizationsfromtheparalyzingeffects
oflossaversion;lossaversionprotectsthemfromthefolliesofoverconfidentoptimism.
The upshot is rather comfortable for the decision maker. Optimists believe that the
decisions they make are more prudent than they really are, and loss-averse decision
makerscorrectlyrejectmarginalpropositionsthattheymightotherwiseaccept.Thereis
noguarantee,ofcourse,thatthebiasescanceloutineverysituation.Anorganizationthat
couldeliminatebothexcessive optimism andexcessivelossaversion should doso.The
combinationoftheoutsideviewwithariskpolicyshouldbethegoal.
Richard Thaler tells of a discussion about decision making he had with the top
managersofthe25divisionsofalargecompany.Heaskedthemtoconsiderariskyoption
in which, with equal probabilities, they could lose a large amount of the capital they
controlledorearndoublethatamount.Noneoftheexecutiveswaswillingtotakesucha
dangerousgamble.ThalerthenturnedtotheCEOofthecompany,whowasalsopresent,
andaskedforhisopinion.Withouthesitation,theCEOanswered,“Iwouldlikeallofthem
toaccepttheirrisks.” In the context of thatconversation,itwasnaturalfortheCEOto
adopta broadframethatencompassedall25bets.LikeSamfacing100cointosses,he
couldcountonstatisticalaggregationtomitigatetheoverallrisk.
SpeakingofRiskPolicies
“Tellhertothinklikeatrader!Youwinafew,youloseafew.”
“Idecidedtoevaluatemyportfolioonlyonceaquarter.Iamtoolossaversetomake
sensibledecisionsinthefaceofdailypricefluctuations.”
“Theyneverbuyextendedwarranties.That’stheirriskpolicy.”
“Eachofourexecutivesislossaverseinhisorherdomain.That’sperfectlynatural,
buttheresultisthattheorganizationisnottakingenoughrisk.”
P
KeepingScore
Exceptfortheverypoor,forwhomincomecoincideswithsurvival,themainmotivators
ofmoney-seekingarenotnecessarilyeconomic.Forthebillionairelookingfortheextra
billion,andindeedfortheparticipantinanexperimentaleconomicsprojectlookingforthe
extradollar,moneyisaproxyforpointsonascaleofself-regardandachievement.These
rewardsand punishments, promisesandthreats, areallin ourheads.We carefully keep
score of them. They shape o C Th5ur preferences and motivate our actions, like the
incentivesprovidedinthesocialenvironment.Asaresult,werefusetocutlosseswhen
doingsowouldadmitfailure,wearebiasedagainstactionsthatcouldleadtoregret,and
wedraw anillusory but sharpdistinction betweenomission and commission,not doing
anddoing,becausethe sense ofresponsibilityisgreaterfor onethan fortheother.The
ultimate currency that rewards or punishes is often emotional, a form of mental self-
dealingthatinevitablycreatesconflictsofinterestwhentheindividualactsasanagenton
behalfofanorganization.
MentalAccounts
Richard Thaler has been fascinated for many years by analogies between the world of
accountingandthementalaccountsthatweusetoorganizeandrunourlives,withresults
thataresometimesfoolishandsometimesveryhelpful.Mentalaccountscomeinseveral
varieties. We hold our money in different accounts, which are sometimes physical,
sometimesonlymental.Wehavespendingmoney,generalsavings,earmarkedsavingsfor
our children’s education or for medical emergencies. There is a clear hierarchy in our
willingnesstodrawontheseaccountstocovercurrentneeds.Weuseaccountsforself-
control purposes, as in making a household budget, limiting the daily consumption of
espressos, or increasing the time spent exercising. Often we pay for self-control, for
instance simultaneously putting money in a savings account and maintaining debt on
creditcards. TheEcons ofthe rational-agentmodel donot resortto mentalaccounting:
theyhaveacomprehensiveviewofoutcomesandaredrivenbyexternalincentives.For
Humans,mentalaccountsareaformofnarrowframing;theykeepthingsundercontrol
andmanageablebyafinitemind.
Mentalaccountsareusedextensivelytokeepscore.Recallthatprofessionalgolfers
putt more successfully when working to avoid a bogey than to achieve a birdie. One
conclusionwecandrawisthatthebestgolferscreateaseparateaccountforeachhole;
theydonotonlymaintainasingleaccountfor their overall success. Anironicexample
thatThalerrelatedinanearlyarticleremainsoneofthebestillustrationsofhowmental
accountingaffectsbehavior:
Twoavidsportsfansplantotravel40milestoseeabasketballgame.Oneofthem
paidforhisticket;theotherwasonhiswaytopurchaseaticketwhenhegotonefree
fromafriend.Ablizzardisannouncedforthenightofthegame.Whichofthetwo
ticketholdersismorelikelytobravetheblizzardtoseethegame?
Theanswerisimmediate:weknowthatthefanwhopaidforhisticketismorelikelyto
drive. Mental accounting provides the explanation. We assume that both fans set up an
accountforthegametheyhopedtosee.Missingthegamewillclosetheaccountswitha
negativebalance.Regardlessofhowtheycamebytheirticket,bothwillbedisappointed
—buttheclosingbalanceisdistinctlymorenegativefortheonewhoboughtaticketand
isnowoutofpocketaswellasdeprivedofthegame.Becausestayinghomeisworsefor
thisindividual,heismoremotivatedtoseethegameandthereforemorelikelytomake
theattempttodriveintoablizzard.Thesearetacitcalculationsofemotionalbalance,of
thekindthatSystem1performswithoutdeliberation.Theemotionsthatpeopleattachto
thestateoftheirmentalaccountsarenotacknowledgedinstandardeconomictheory.An
Econwouldrealizethatthetickethasalreadybeenpaidforandcannotbereturned.Its
costis“sunk”andtheEconwouldnotcarewhetherhehadboughtthetickettothegame
orgotitfromafriend(ifEcoBTh5motketnshavefriends).Toimplementthisrational
behavior,System2wouldhavetobeawareofthecounterfactualpossibility:“WouldIstill
driveintothissnowstormifIhadgottentheticketfreefromafriend?”Ittakesanactive
anddisciplinedmindtoraisesuchadifficultquestion.
A related mistake afflicts individual investors when they sell stocks from their
portfolio:
Youneedmoneytocoverthecostsofyourdaughtersweddingandwillhavetosell
somestock.Yourememberthepriceatwhichyouboughteachstockandcanidentify
itasa“winner,”currentlyworthmorethanyoupaidforit,orasaloser.Amongthe
stocks you own, Blueberry Tiles is a winner; if you sell it today you will have
achievedagainof$5,000.YouholdanequalinvestmentinTiffanyMotors,whichis
currentlyworth$5,000lessthanyoupaidforit.Thevalueofbothstockshasbeen
stableinrecentweeks.Whichareyoumorelikelytosell?
Aplausiblewaytoformulatethechoiceisthis:“IcouldclosetheBlueberryTilesaccount
andscoreasuccessformyrecordasaninvestor.Alternatively,IcouldclosetheTiffany
Motorsaccountandaddafailuretomyrecord.WhichwouldIratherdo?”Iftheproblem
isframedasachoicebetweengivingyourselfpleasureandcausingyourselfpain,youwill
certainlysellBlueberryTilesandenjoyyourinvestmentprowess.Asmightbeexpected,
finance research has documented a massive preference for selling winners rather than
losers—abiasthathasbeengivenanopaquelabel:thedispositioneffect.
Thedispositioneffectisaninstanceofnarrowframing. Theinvestor has setup an
accountforeachsharethatshebought,andshewantstocloseeveryaccountasagain.A
rationalagentwouldhaveacomprehensiveviewoftheportfolioandsellthestockthatis
leastlikelytodowellinthefuture,withoutconsideringwhetheritisawinneroraloser.
Amostoldmeofaconversationwithafinancialadviser,whoaskedhimforacomplete
listofthestocksinhisportfolio,includingthepriceatwhicheachhadbeenpurchased.
When Amos asked mildly, “Isn’t it supposed not to matter?” the adviser looked
astonished.Hehadapparentlyalwaysbelievedthatthestateofthementalaccountwasa
validconsideration.
Amos’s guess about the financial advisers beliefs was probably right, but he was
wrongtodismissthebuyingpriceasirrelevant.Thepurchasepricedoesmatterandshould
beconsidered,evenbyEcons.Thedispositioneffectisacostlybiasbecausethequestion
of whether to sell winners or losers has a clear answer, and it is not that it makes no
difference.Ifyoucareaboutyourwealthratherthanyourimmediateemotions,youwill
selltheloserTiffanyMotorsandhangontothewinningBlueberryTiles.Atleastinthe
UnitedStates,taxesprovideastrongincentive:realizinglossesreducesyourtaxes,while
selling winners exposes you to taxes. This elementary fact of financial life is actually
knowntoallAmericaninvestors,and itdeterminesthedecisionstheymakeduringone
monthoftheyear—investorssellmorelosersinDecember,whentaxesareontheirmind.
Thetaxadvantageisavailableallyear,ofcourse,butfor11monthsoftheyearmental
accounting prevails over financial common sense. Another argument against selling
winnersisthewell-documentedmarketanomalythatstocksthatrecentlygainedinvalue
arelikelytogoongainingatleastforashortwhile.Theneteffectislarge:theexpected
after-taxextrareturnofsellingTiffanyratherthanBlueberryis3.4%overthenextyear.Cl
BTh5ingeliosingamentalaccountwithagainisapleasure,butitisapleasureyoupay
for.ThemistakeisnotonethatanEconwouldevermake,andexperiencedinvestors,who
areusingtheirSystem2,arelesssusceptibletoitthanarenovices.
A rational decision maker is interested only in the future consequences of current
investments.JustifyingearliermistakesisnotamongtheEcon’sconcerns.Thedecisionto
investadditionalresourcesinalosingaccount,whenbetterinvestmentsareavailable,is
knownasthesunk-costfallacy,acostly mistake thatisobservedindecisions large and
small.Drivingintotheblizzardbecauseonepaidforticketsisasunk-costerror.
Imagine a company that has already spent $50 million on a project. The project is
nowbehindscheduleandtheforecastsofitsultimatereturnsarelessfavorablethanatthe
initial planning stage. An additional investment of $60 million is required to give the
projectachance.Analternativeproposalistoinvestthesameamountinanewproject
that currently looks likely to bring higher returns. What will the company do? All too
often a company afflicted by sunk costs drives into the blizzard, throwing good money
afterbadratherthanacceptingthehumiliationofclosingtheaccountofacostlyfailure.
Thissituationisinthetop-rightcellofthefourfoldpattern,wherethechoiceisbetweena
surelossandanunfavorablegamble,whichisoftenunwiselypreferred.
Theescalationofcommitmenttofailingendeavorsisamistakefromtheperspective
of the firm but not necessarily from the perspective of the executive who “owns” a
flounderingproject.Cancelingtheprojectwillleaveapermanentstainontheexecutive’s
record, and his personal interests are perhaps best served by gambling further with the
organization’sresourcesinthehopeofrecoupingtheoriginalinvestment—oratleastinan
attemptto postponethe day ofreckoning. In the presence ofsunk costs, themanagers
incentivesaremisalignedwiththeobjectivesofthefirmanditsshareholders,afamiliar
typeofwhatisknownastheagencyproblem.Boardsofdirectorsarewellawareofthese
conflictsandoftenreplaceaCEOwhoisencumberedbypriordecisionsandreluctantto
cutlosses.ThemembersoftheboarddonotnecessarilybelievethatthenewCEOismore
competent than the one she replaces. They do know that she does not carry the same
mentalaccountsandisthereforebetterabletoignorethesunkcostsofpastinvestmentsin
evaluatingcurrentopportunities.
Thesunk-costfallacykeepspeoplefortoolonginpoorjobs,unhappymarriages,and
unpromising research projects. I have often observed young scientists struggling to
salvageadoomedprojectwhentheywouldbebetteradvisedtodropitandstartanew
one. Fortunately, research suggests that at least in some contexts the fallacy can be
overcome.Thesunk-costfallacyisidentifiedandtaughtasamistakeinbotheconomics
andbusinesscourses,apparentlytogoodeffect:thereisevidencethatgraduatestudentsin
thesefieldsaremorewillingthanotherstowalkawayfromafailingproject.
Regret
Regretisanemotion,anditisalsoapunishmentthatweadministertoourselves.Thefear
ofregretisafactorinmanyofthedecisionsthatpeoplemake(“Don’tdothis,youwill
regret it” is a common warning), and the actual experience of regret is familiar. The
emotionalstatehasbeenwelldescribedbytwoDutchpsychologists,whonotedthatregret
is“accompaniedbyfeelingsthatoneshouldhaveknownbetter,byaBTh5=“4ncesinking
feeling, by thoughts about the mistake one has made and the opportunities lost, by a
tendencytokickoneselfandtocorrectone’smistake,andbywantingtoundotheevent
andtogeta second chance.”Intenseregretis what youexperiencewhenyou can most
easilyimagineyourselfdoingsomethingotherthanwhatyoudid.
Regretisoneofthecounterfactualemotionsthataretriggeredbytheavailabilityof
alternativestoreality. Aftereveryplanecrash therearespecialstories about passengers
who“shouldnot”havebeenontheplane—theygotaseatatthelastmoment,theywere
transferredfromanother airline,theywere supposedtofly aday earlier buthad had to
postpone. The common feature of these poignant stories is that they involve unusual
events—and unusual events are easier than normal events to undo in imagination.
Associative memory contains a representation of the normal world and its rules. An
abnormal event attracts attention, and it also activates the idea of the event that would
havebeennormalunderthesamecircumstances.
Toappreciatethelinkofregrettonormality,considerthefollowingscenario:
Mr.Brownalmostneverpicksuphitchhikers.Yesterdayhegavea manarideand
wasrobbed.
Mr.Smithfrequentlypicksuphitchhikers.Yesterdayhegaveamanarideandwas
robbed.
Whoofthetwowillexperiencegreaterregretovertheepisode?
Theresultsarenotsurprising:88%ofrespondentssaidMr.Brown,12%saidMr.Smith.
Regretisnotthesameasblame.Otherparticipantswereaskedthisquestionaboutthe
sameincident:
Whowillbecriticizedmostseverelybyothers?
Theresults:Mr.Brown23%,Mr.Smith77%.
Regretandblamearebothevokedbyacomparisontoanorm,buttherelevantnorms
aredifferent.TheemotionsexperiencedbyMr.BrownandMr.Smitharedominatedby
whattheyusuallydoabouthitchhikers.TakingahitchhikerisanabnormaleventforMr.
Brown, and most people therefore expect him to experience more intense regret. A
judgmental observer, however, will compare both men to conventional norms of
reasonablebehaviorandislikelytoblameMr.Smithforhabituallytakingunreasonable
risks. We are tempted to say that Mr. Smith deserved his fate and that Mr. Brown was
unlucky.ButMr.Brownistheonewhoismorelikelytobekickinghimself,becausehe
actedoutofcharacterinthisoneinstance.
Decision makers know that they are prone to regret, and the anticipation of that
painful emotion plays a part in many decisions. Intuitions about regret are remarkably
uniformandcompelling,asthenextexampleillustrates.
Paul owns shares in company A. During the past year he considered switching to
stock in company B, but he decided against it. He now learns that he would have
beenbetteroffby$1,200ifhehadswitchedtothestockofcompanyB.
GeorgeownedsharesincompanyB.DuringthepastyearheswBTh5ne
Whofeelsgreaterregret?
Theresultsareclear-cut:8%ofrespondentssayPaul,92%sayGeorge.
Thisiscurious,becausethesituationsofthetwoinvestorsareobjectivelyidentical.
TheybothnowownstockAandbothwouldhavebeenbetteroffbythesameamountif
they owned stock B. The only difference is that George got to where he is by acting,
whereasPaulgottothesameplacebyfailingtoact.Thisshortexampleillustratesabroad
story:peopleexpecttohavestrongeremotionalreactions(includingregret)toanoutcome
thatisproducedbyactionthantothesameoutcomewhenitisproducedbyinaction.This
hasbeenverifiedinthecontextofgambling:peopleexpecttobehappieriftheygamble
andwinthaniftheyrefrainfromgamblingandgetthesameamount.Theasymmetryisat
leastasstrongforlosses,anditappliestoblameaswellastoregret.Thekeyisnotthe
differencebetweencommissionandomissionbutthedistinctionbetweendefaultoptions
and actions that deviate from the default. When you deviate from the default, you can
easily imagine the norm—and if the default is associated with bad consequences, the
discrepancybetween thetwo canbe thesource of painful emotions.The defaultoption
when you own a stock is not to sell it, but the default option when you meet your
colleagueinthemorningistogreethim.Sellingastockandfailingtogreetyourcoworker
arebothdeparturesfromthedefaultoptionandnaturalcandidatesforregretorblame.
Inacompellingdemonstrationofthepowerofdefaultoptions,participantsplayeda
computersimulationofblackjack.Someplayerswereasked“Doyouwishtohit?”while
otherswere asked“Do you wishto stand?”Regardless ofthe question, sayingyes was
associatedwithmuchmoreregretthansayingnoiftheoutcomewasbad!Thequestion
evidentlysuggestsadefaultresponse,whichis,“Idon’thaveastrongwishtodoit.”Itis
thedeparturefromthedefaultthatproducesregret.Anothersituationinwhichactionis
the default is that of a coach whose team lost badly in their last game. The coach is
expectedtomakeachangeofpersonnelorstrategy,andafailuretodosowillproduce
blameandregret.
Theasymmetryintheriskofregretfavorsconventionalandrisk-aversechoices.The
biasappearsinmanycontexts.Consumerswhoareremindedthattheymayfeelregretasa
result of their choices show an increased preference for conventional options, favoring
brandnamesovergenerics.Thebehaviorofthemanagersoffinancialfundsastheyear
approachesitsendalsoshowsaneffectof anticipated evaluation: they tendtocleanup
their portfolios of unconventional and otherwise questionable stocks. Even life-or-death
decisionscanbeaffected.Imagineaphysicianwithagravelyillpatient.Onetreatmentfits
thenormalstandardofcare;anotherisunusual.Thephysicianhassomereasontobelieve
that the unconventional treatment improves the patient’s chances, but the evidence is
inconclusive.Thephysicianwhoprescribestheunusualtreatmentfacesasubstantialrisk
of regret, blame, and perhaps litigation. In hindsight, it will be easier to imagine the
normal choice; the abnormal choice will be easy to undo. True, a good outcome will
contributetothereputationofthephysicianwhodared,butthepotentialbenefitissmaller
thanthepotentialcostbecausesuccessisgenerallyamorenormaloutcomethanisfailure.
ResponsibBTh5onchepotenility
Losses are weighted about twice as much as gains in several contexts: choice between
gambles, the endowment effect, and reactions to price changes. The loss-aversion
coefficientismuchhigherinsomesituations.Inparticular,youmaybemorelossaverse
foraspectsofyourlifethataremoreimportantthanmoney,suchashealth.Furthermore,
your reluctance to “sell” important endowments increases dramatically when doing so
might make you responsible for an awful outcome. Richard Thalers early classic on
consumer behavior included a compelling example, slightly modified in the following
question:
Youhavebeenexposedtoadiseasewhichifcontractedleadstoaquickandpainless
deathwithinaweek.Theprobabilitythatyouhavethediseaseis1/1,000.Thereisa
vaccinethatiseffectiveonlybeforeanysymptomsappear.Whatisthemaximumyou
wouldbewillingtopayforthevaccine?
Mostpeoplearewillingtopayasignificantbutlimitedamount.Facingthepossibilityof
death is unpleasant, but the risk is small and it seems unreasonable to ruin yourself to
avoidit.Nowconsideraslightvariation:
Volunteersareneededforresearchontheabovedisease.Allthatisrequiredisthat
you expose yourself to a 1/1,000 chance of contracting the disease. What is the
minimum you would ask to be paid in order to volunteer for this program? (You
wouldnotbeallowedtopurchasethevaccine.)
As you might expect, the fee that volunteers set is far higher than the price they were
willingtopayforthevaccine.Thalerreportedinformallythatatypicalratioisabout50:1.
Theextremelyhighsellingpricereflectstwofeaturesofthisproblem.Inthefirstplace,
youarenotsupposedtosellyourhealth;thetransactionisnotconsideredlegitimateand
thereluctancetoengageinitisexpressedinahigherprice.Perhapsmostimportant,you
willberesponsiblefortheoutcomeifitisbad.Youknowthatifyouwakeuponemorning
with symptoms indicating that you will soon be dead, you will feel more regret in the
second case than in the first, because you could have rejected the idea of selling your
healthwithoutevenstoppingtoconsidertheprice.Youcouldhavestayedwiththedefault
optionanddonenothing,andnowthiscounterfactualwillhauntyoufortherestofyour
life.
The survey of parents’ reactions to a potentially hazardous insecticide mentioned
earlier also included a question about the willingness to accept increased risk. The
respondentsweretoldtoimaginethattheyusedaninsecticidewheretheriskofinhalation
andchildpoisoningwas15per10,000bottles.Alessexpensiveinsecticidewasavailable,
forwhichtheriskrosefrom15to16per10,000bottles.Theparentswereaskedforthe
discountthatwouldinducethemtoswitchtothelessexpensive(andlesssafe)product.
Morethantwo-thirdsoftheparentsinthesurveyrespondedthattheywouldnotpurchase
thenewproductatanyprice!Theywereevidentlyrevoltedbytheveryideaoftradingthe
safety of their child for money. The minority who found a discount they could accept
demandedanamountthatwassignificantlyhigherthantheamounttheywerewillingto
payforafarlargerimprovementinthesafetyoftheproduct.
Anyonecanunderstandandsympathizewiththereluctanceofparentstotradeevena
minute increase of risk to their child for money. It is worth noting, however, that this
attitudeisincoherentandpotentiallydamagingtothesafetyoftBTh5rytanceofhosewe
wishtoprotect.Eventhemostlovingparentshavefiniteresourcesoftimeandmoneyto
protecttheirchild(thekeeping-my-child-safementalaccounthasalimitedbudget),andit
seemsreasonabletodeploytheseresourcesinaway thatputsthemtobestuse.Money
thatcouldbesavedbyacceptingaminuteincreaseintheriskofharmfromapesticide
could certainly be put to better use in reducing the child’s exposure to other harms,
perhapsbypurchasingasafercarseatorcoversforelectricsockets.Thetabootradeoff
againstacceptinganyincreaseinriskisnotanefficientwaytousethesafetybudget.In
fact,theresistancemaybemotivatedbyaselfishfearofregretmorethanbyawishto
optimize the child’s safety. The what-if? thought that occurs to any parent who
deliberatelymakessuchatradeisanimageoftheregretandshameheorshewouldfeel
intheeventthepesticidecausedharm.
Theintenseaversiontotradingincreasedriskforsomeotheradvantageplaysoutona
grandscaleinthelawsandregulationsgoverningrisk.Thistrendisespeciallystrongin
Europe, where the precautionary principle, which prohibits any action that might cause
harm,isawidelyaccepteddoctrine.Intheregulatorycontext,theprecautionaryprinciple
imposestheentireburdenofprovingsafetyonanyonewhoundertakesactionsthatmight
harm people or the environment. Multiple international bodies have specified that the
absenceofscientificevidenceofpotentialdamageisnotsufficientjustificationfortaking
risks. As the jurist Cass Sunstein points out, the precautionary principle is costly, and
when interpreted strictly it can be paralyzing. He mentions an impressive list of
innovations that would not have passed the test, including “airplanes, air conditioning,
antibiotics, automobiles, chlorine, the measles vaccine, open-heart surgery, radio,
refrigeration, smallpox vaccine, and X-rays.” The strong version of the precautionary
principleisobviouslyuntenable.Butenhancedlossaversionisembeddedinastrongand
widelysharedmoralintuition;itoriginatesinSystem1.Thedilemmabetweenintensely
loss-averse moral attitudes and efficient risk management does not have a simple and
compellingsolution.
Wespendmuchofourdayanticipating,andtryingtoavoid,theemotionalpainsweinflict
on ourselves. How seriously should we take these intangible outcomes, the self-
administered punishments (and occasional rewards) that we experience as we scoreour
lives?Econsarenotsupposedtohavethem,andtheyarecostlytoHumans.Theyleadto
actionsthataredetrimentaltothewealthofindividuals,tothesoundnessofpolicy,andto
thewelfareofsociety.Buttheemotionsofregretandmoralresponsibilityarereal,andthe
factthatEconsdonothavethemmaynotberelevant.
Isitreasonable,inparticular,toletyourchoicesbeinfluencedbytheanticipationof
regret? Susceptibility to regret, like susceptibility to fainting spells, is a fact of life to
whichonemustadjust.Ifyouareaninvestor,sufficientlyrichandcautiousatheart,you
maybeableto affordtheluxuryof a portfoliothatminimizestheexpectationof regret
evenifitdoesnotmaximizetheaccrualofwealth.
Youcanalsotakeprecautionsthatwillinoculateyouagainstregret.Perhapsthemost
usefulistobeexplicitabouttheanticipationofregret.Ifyoucanrememberwhenthings
gobadlythatyouconsideredthepossibilityofregretcarefullybeforedeciding,youare
likelytoexperiencelessof it.Youshouldalsoknowthat regretandhindsightbiaswill
cometogether,soanythingyoucandotoprecludehindsightislikelytobehelpful.My
personal hindsight-avoiding B Th5he ything policy is to be either very thorough or
completely casual when making a decision with long-term consequences. Hindsight is
worsewhenyouthinkalittle,justenoughtotellyourselflater,“Ialmostmadeabetter
choice.”
DanielGilbertandhiscolleaguesprovocativelyclaimthatpeoplegenerallyanticipate
moreregretthantheywillactuallyexperience,becausetheyunderestimatetheefficacyof
thepsychologicaldefensestheywilldeploy—whichtheylabelthe“psychologicalimmune
system.” Their recommendation is that you should not put too much weight on regret;
evenifyouhavesome,itwillhurtlessthanyounowthink.
SpeakingofKeepingScore
“Hehasseparatementalaccountsforcashandcreditpurchases.Iconstantlyremind
himthatmoneyismoney.”
“Wearehangingontothatstockjusttoavoidclosingourmentalaccountataloss.
It’sthedispositioneffect.”
“Wediscoveredanexcellentdishatthatrestaurantandwenevertryanythingelse,to
avoidregret.”
“Thesalespersonshowedmethemostexpensivecarseatandsaiditwasthesafest,
andIcouldnotbringmyselftobuythecheapermodel.Itfeltlikeatabootradeoff.”
P
Reversals
Youhavethetaskofsettingcompensationforvictimsofviolentcrimes.Youconsider
thecaseofamanwholosttheuseofhisrightarmasaresultofagunshotwound.He
was shot when he walked in on a robbery occurring in a convenience store in his
neighborhood.
Twostoreswere located near thevictim’shome,oneof which hefrequentedmore
regularlythantheother.Considertwoscenarios:
(i)Theburglaryhappenedintheman’sregularstore.
(ii) The man’s regular store was closed for a funeral, so he did his shopping in the
otherstore,wherehewasshot.
Shouldthestoreinwhichthemanwasshotmakeadifferencetohiscompensation?
You made your judgment in joint evaluation, where you consider two scenarios at the
same time and make a comparison. You can apply a rule. If you think that the second
scenariodeserveshighercompensation,youshouldassignitahigherdollarvalue.
Thereisalmostuniversalagreementontheanswer:compensationshouldbethesame
inbothsituations.Thecompensationisforthecripplinginjury,sowhyshouldthelocation
inwhichitoccurredmakeanydiffCmakerence?Thejointevaluationofthetwoscenarios
gaveyouachancetoexamineyourmoralprinciplesaboutthefactorsthatarerelevantto
victimcompensation. Formost people, location is notone of these factors. Asin other
situations that require an explicit comparison, thinking was slow and System 2 was
involved.
ThepsychologistsDaleMillerandCathyMcFarland,whooriginallydesignedthetwo
scenarios, presented them to different people for single evaluation. In their between-
subjectsexperiment,eachparticipantsawonlyonescenarioandassignedadollarvalueto
it.Theyfound,asyousurelyguessed,thatthevictimwasawardedamuchlargersumifhe
wasshotinastoreherarelyvisitedthanifhewasshotinhisregularstore.Poignancy(a
closecousinofregret)isacounterfactualfeeling,whichisevokedbecausethethought“if
onlyhehadshoppedathisregularstore…”comesreadilytomind.ThefamiliarSystem1
mechanismsofsubstitutionandintensitymatchingtranslatethestrengthoftheemotional
reactiontothestoryontoamonetaryscale,creatingalargedifferenceindollarawards.
The comparison of the two experiments reveals a sharp contrast. Almost everyone
whoseesbothscenariostogether(within-subject)endorsestheprinciplethatpoignancyis
nota legitimateconsideration.Unfortunately,the principle becomesrelevant onlywhen
thetwoscenariosareseentogether,andthisisnothowlifeusuallyworks.Wenormally
experiencelifeinthebetween-subjectsmode,inwhichcontrastingalternativesthatmight
changeyourmindareabsent,andofcourseWYSIATI.Asaconsequence,thebeliefsthat
you endorse when you reflect about morality do not necessarily govern youremotional
reactions,andthemoralintuitionsthatcometoyourmindindifferentsituationsarenot
internallyconsistent.
Thediscrepancybetweensingleandjointevaluationoftheburglaryscenariobelongs
toabroadfamilyofreversalsofjudgmentandchoice.Thefirstpreferencereversalswere
discoveredintheearly1970s,andmanyreversalsofotherkindswerereportedoverthe
years.
ChallengingEconomics
Preferencereversalshaveanimportantplaceinthehistoryoftheconversationbetween
psychologists and economists. The reversals that attracted attention were reported by
SarahLichtensteinandPaulSlovic,twopsychologistswhohaddonetheirgraduatework
attheUniversityofMichiganatthesametimeasAmos.Theyconductedanexperiment
onpreferencesbetweenbets,whichIshowinaslightlysimplifiedversion.
You are offered a choice between two bets, which are to be played on a roulette
wheelwith36sectors.
BetA:11/36towin$160,25/36tolose$15
BetB:35/36towin$40,1/36tolose$10
Youareaskedtochoosebetweenasafebetandariskierone:analmostcertainwinofa
modest amount, or a small chance to win a substantially larger amount and a high
probabilityoflosing.Safetyprevails,andBisclearlythemorepopularchoice.
Nowconsidereachbetseparately:Ifyouownedthatbet,whatisthelowestpriceat
whichyouwouldsellit?Rememberthatyouarenotnegotiatingwithanyone—yourtask
istodeterminethelowestpriceatwhichyouwouldtrulybewillingtogiveupthebet.Try
it.YoumayfindthattheprizethatcanbewonisBmaktwearenotsalientinthistask,and
thatyourevaluationofwhatthebetisworthisanchoredonthatvalue.Theresultssupport
thisconjecture,andthesellingpriceishigherforbetAthanforbetB.Thisisapreference
reversal:peoplechooseBoverA,butiftheyimagineowningonlyoneofthem,theyseta
highervalueonAthanonB.Asintheburglaryscenarios,thepreferencereversaloccurs
becausejointevaluationfocusesattentiononanaspectofthesituation—thefactthatbetA
ismuchlesssafethanbetB—whichwaslesssalientinsingleevaluation.Thefeaturesthat
caused the difference between the judgments of the options in single evaluation—the
poignancyofthevictimbeinginthewronggrocerystoreandtheanchoringontheprize—
are suppressed or irrelevant when the options are evaluated jointly. The emotional
reactions of System 1 are much more likely to determine single evaluation; the
comparison that occurs in joint evaluation always involves a more careful and effortful
assessment,whichcallsforSystem2.
The preference reversal can be confirmed in a within-subject experiment, in which
subjects set prices on both sets as part of a long list, and also choose between them.
Participantsareunawareoftheinconsistency,andtheirreactionswhenconfrontedwithit
can be entertaining. A 1968 interview of a participant in the experiment, conducted by
Sarah Lichtenstein, is an enduring classic of the field. The experimenter talks at length
withabewilderedparticipant,whochoosesonebetoveranotherbutisthenwillingtopay
moneytoexchangetheitemhejustchosefortheonehejustrejected,andgoesthrough
thecyclerepeatedly.
Rational Econs would surely not be susceptible to preference reversals, and the
phenomenonwasthereforeachallengetotherational-agentmodelandtotheeconomic
theorythatisbuiltonthismodel.Thechallengecouldhavebeenignored,butitwasnot.A
fewyearsafterthepreferencereversalswerereported,tworespectedeconomists,David
Grether and Charles Plott, published an article in the prestigious American Economic
Review,inwhichtheyreportedtheirownstudiesofthephenomenonthatLichtensteinand
Slovichaddescribed.Thiswasprobablythefirstfindingbyexperimentalpsychologists
thateverattractedtheattentionofeconomists.TheintroductoryparagraphofGretherand
Plott’sarticlewasunusuallydramaticforascholarlypaper,andtheirintentwasclear:“A
body of data and theory has been developing within psychology which should be of
interesttoeconomists.Takenatfacevaluethedataaresimplyinconsistentwithpreference
theory and have broad implications about research priorities within economics…. This
paperreportstheresultsofaseriesofexperimentsdesignedtodiscreditthepsychologists’
worksasappliedtoeconomics.”
GretherandPlottlistedthirteentheoriesthatcouldexplaintheoriginalfindingsand
reported carefully designed experiments that tested these theories. One of their
hypotheses,which—needlesstosay—psychologistsfoundpatronizing,wasthattheresults
were due to the experiment being carried out by psychologists! Eventually, only one
hypothesis was left standing: the psychologists were right. Grether and Plott
acknowledged that this hypothesis is the least satisfactory from the point of view of
standardpreferencetheory,because“itallowsindividualchoicetodependonthecontext
inwhichthechoicesaremade”—aclearviolationofthecoherencedoctrine.
You might think that this surprising outcome would cause much anguished soul-
searchingamongeconomists,asabasicassumptionoftheirtheoryhadbeensuccessfully
challenged.Butthisisnotthewaythingsworkinsocialscience,includingbothpsychol
Bmak/p>ished soogy and economics. Theoretical beliefs are robust, and it takes much
morethanoneembarrassingfindingforestablishedtheoriestobeseriouslyquestioned.In
fact, Grether and Plott’s admirably forthright report had little direct effect on the
convictionsofeconomists,probablyincludingGretherandPlott.Itcontributed,however,
toa greaterwillingnessof thecommunity ofeconomiststo takepsychological research
seriously and thereby greatly advanced the conversation across the boundaries of the
disciplines.
Categories
“HowtallisJohn?”IfJohnis5’tall,youranswerwilldependonhisage;heisverytallif
heis6yearsold,veryshortifheis16.YourSystem1automaticallyretrievestherelevant
norm,andthemeaningofthescaleoftallnessisadjustedautomatically.Youarealsoable
to match intensities across categories and answer the question, “How expensive is a
restaurantmealthat matchesJohn’sheight?” Your answerwilldepend onJohn’s age: a
muchlessexpensivemealifheis16thanifheis6.
Butnowlookatthis:
Johnis6.Heis5’tall.
Jimis16.Heis5′1″tall.
Insingleevaluations,everyonewill agree thatJohnisvery tall andJimisnot, because
theyarecomparedtodifferentnorms.Ifyouareaskedadirectlycomparativequestion,“Is
JohnastallasJim?”youwillanswerthatheisnot.Thereisnosurprisehereandlittle
ambiguity.Inothersituations,however,theprocessbywhichobjectsandeventsrecruit
theirowncontextofcomparisoncanleadtoincoherentchoicesonseriousmatters.
You should not form the impression that single and joint evaluations are always
inconsistent,orthatjudgmentsarecompletelychaotic.Ourworldisbrokenintocategories
forwhichwehavenorms,suchassix-year-oldboysortables.Judgmentsandpreferences
are coherent within categories but potentially incoherent when the objects that are
evaluated belong to different categories. For an example, answer the following three
questions:
Whichdoyoulikemore,applesorpeaches?
Whichdoyoulikemore,steakorstew?
Whichdoyoulikemore,applesorsteak?
Thefirstandthesecondquestionsrefertoitemsthatbelongtothesamecategory,andyou
knowimmediatelywhichyoulikemore.Furthermore,youwouldhaverecoveredthesame
rankingfromsingleevaluation(“Howmuchdoyoulikeapples?”and“Howmuchdoyou
likepeaches?”)becauseapplesandpeachesbothevokefruit.Therewillbenopreference
reversalbecausedifferentfruitsarecomparedtothesamenormandimplicitlycompared
to each other in single as well as in joint evaluation. In contrastto the within-category
questions,thereisnostableanswerforthecomparisonofapplesandsteak.Unlikeapples
and peaches, apples and steak are not natural substitutes and they do not fill the same
need.Yousometimeswantsteakandsometimesanapple,butyourarelysaythateither
onewilldojustaswellastheother.
Imaginereceivingane-mailfromanorganizationthatyougenerallytrust,requesting
aBmak
Dolphinsinmanybreedinglocationsarethreatenedbypollution,whichisexpected
toresultinadeclineofthedolphinpopulation.Aspecialfundsupportedbyprivate
contributions has been set up to provide pollution-free breeding locations for
dolphins.
Whatassociationsdidthisquestionevoke?Whetherornotyouwerefullyawareofthem,
ideasand memoriesof relatedcauses cameto yourmind. Projectsintended topreserve
endangeredspecieswereespeciallylikelytoberecalled.EvaluationontheGOOD–BAD
dimensionisanautomaticoperationofSystem1,andyouformedacrudeimpressionof
the ranking of the dolphin among the species that came to mind. The dolphin is much
morecharmingthan,say,ferrets,snails,orcarp—ithasahighlyfavorablerankintheset
ofspeciestowhichitisspontaneouslycompared.
Thequestionyoumustanswerisnotwhetheryoulikedolphinsmorethancarp;you
have been asked to come up with a dollar value. Of course, you may know from the
experienceofprevioussolicitationsthatyouneverrespondtorequestsofthiskind.Fora
fewminutes,imagineyourselfassomeonewhodoescontributetosuchappeals.
Likemanyotherdifficultquestions,theassessmentofdollarvaluecanbesolvedby
substitutionandintensitymatching.Thedollarquestionisdifficult,butaneasierquestion
isreadilyavailable.Becauseyoulikedolphins,youwillprobablyfeelthatsavingthemis
a good cause. The next step, which is also automatic, generates a dollar number by
translatingtheintensityofyourlikingofdolphinsontoascaleofcontributions.Youhave
asenseofyourscaleofpreviouscontributionstoenvironmentalcauses,whichmaydiffer
fromthescaleofyourcontributionstopoliticsortothefootballteamofyouralmamater.
Youknowwhatamountwouldbea“verylarge”contributionforyouandwhatamounts
are“large,”“modest,”and“small.”Youalsohavescalesforyourattitudetospecies(from
“likeverymuch”to“notatall”).Youarethereforeabletotranslateyourattitudeontothe
dollarscale,movingautomaticallyfrom“likealot”to“fairlylargecontribution”andfrom
theretoanumberofdollars.
Onanotheroccasion,youareapproachedwithadifferentappeal:
Farmworkers,whoareexposedtothesunformanyhours,haveahigherrateofskin
cancerthanthegeneralpopulation.Frequentmedicalcheck-upscanreducetherisk.
Afundwillbesetuptosupportmedicalcheck-upsforthreatenedgroups.
Is this an urgent problem? Which category did it evoke as a norm when you assessed
urgency? If you automatically categorized the problem as a public-health issue, you
probably found that the threat of skin cancer in farmworkers does not rank very high
amongtheseissues—almostcertainlylowerthantherankofdolphinsamongendangered
species.Asyoutranslatedyourimpressionoftherelativeimportanceoftheskincancer
issueintoadollaramount,youmightwellhavecomeupwithasmallercontributionthan
you offered to protect an endearing animal. In experiments, the dolphins attracted
somewhatlargercontributionsinsingleevaluationthandidthefarmworkers.
Next, consider the two causes in joint evaluation. Which of the two, dolphins or
farmworkers, deserves a larger dollar contribution? Joint evaluation highlights a feature
that was not noticeable in si Bmakecksider the ngle evaluation but is recognized as
decisivewhendetected:farmersarehuman,dolphinsarenot.Youknewthat,ofcourse,
butitwasnotrelevanttothejudgmentthatyoumadeinsingleevaluation.Thefactthat
dolphins are not human did not arise because all the issues that were activated in your
memorysharedthatfeature.Thefactthatfarmworkersarehumandidnotcometomind
becauseallpublic-healthissuesinvolvehumans.Thenarrowframingofsingleevaluation
alloweddolphinstohaveahigherintensityscore,leadingtoahighrateofcontributions
by intensity matching. Joint evaluation changes the representation of the issues: the
“humanvs.animal”featurebecomessalientonlywhenthetwoareseentogether.Injoint
evaluation people show a solid preference for the farmworkers and a willingness to
contributesubstantiallymoretotheirwelfarethantotheprotectionofalikablenon-human
species.Hereagain,asinthecasesofthebetsandtheburglaryshooting,thejudgments
madeinsingleandinjointevaluationwillnotbeconsistent.
Christopher Hsee, of the University of Chicago, has contributed the following
exampleofpreferencereversal,amongmanyothersofthesametype.Theobjectstobe
evaluatedaresecondhandmusicdictionaries.
DictionaryA DictionaryB
Yearofpublication 1993 1993
Numberofentries 10,000 20,000
Condition Likenew Covertorn,otherwiselikenew
When the dictionaries are presented in single evaluation, dictionary A is valued more
highly, but of course the preference changes in joint evaluation. The result illustrates
Hsee’s evaluability hypothesis: The number of entries is given no weight in single
evaluation,becausethenumbersarenot“evaluable”ontheirown.Injointevaluation,in
contrast,itisimmediatelyobviousthatdictionaryBissuperioronthisattribute,anditis
alsoapparentthatthenumberofentriesisfarmoreimportantthantheconditionofthe
cover.
UnjustReversals
Thereisgoodreasontobelievethattheadministrationofjusticeisinfectedbypredictable
incoherence in several domains. The evidence is drawn in part from experiments,
includingstudiesofmockjuries,andinpartfromobservationofpatternsinlegislation,
regulation,andlitigation.
Inoneexperiment,mockjurorsrecruitedfromjuryrollsinTexaswereaskedtoassess
punitivedamagesinseveralcivilcases.Thecasescameinpairs,eachconsistingofone
claimforphysicalinjuryandoneforfinancialloss.Themockjurorsfirstassessedoneof
thescenariosandthentheywereshownthecasewithwhichitwasBmakin,eacpaired
andwereaskedtocomparethetwo.Thefollowingaresummariesofonepairofcases:
Case 1: A child suffered moderate burns when his pajamas caught fire as he was
playing with matches. The firm that produced the pajamas had not made them
adequatelyfireresistant.
Case 2: The unscrupulous dealings of a bank caused another bank a loss of $10
million.
Halfoftheparticipantsjudgedcase1first(insingleevaluation)beforecomparingthetwo
casesinjointevaluation.Thesequencewasreversedfortheotherparticipants.Insingle
evaluation,thejurorsawardedhigherpunitivedamagestothedefraudedbankthantothe
burnedchild,presumablybecausethesizeofthefinanciallossprovidedahighanchor.
When the cases were considered together, however, sympathy for the individual
victimprevailedovertheanchoringeffectandthejurorsincreasedtheawardtothechild
tosurpasstheawardtothebank.Averagingoverseveralsuchpairsofcases,awardsto
victimsofpersonalinjuryweremorethantwiceaslargeinjointthaninsingleevaluation.
Thejurorswhosawthecaseoftheburnedchildonitsownmadeanofferthatmatchedthe
intensity of their feelings. They could not anticipate that the award to the child would
appear inadequate in the context of a large award to a financial institution. In joint
evaluation,thepunitiveawardtothebankremainedanchoredonthelossithadsustained,
buttheawardtotheburnedchildincreased,reflectingtheoutrageevokedbynegligence
thatcausesinjurytoachild.
Aswehaveseen,rationalityisgenerallyservedbybroaderandmorecomprehensive
frames,andjointevaluationisobviouslybroaderthansingleevaluation.Ofcourse,you
shouldbewaryofjointevaluationwhensomeonewhocontrolswhatyouseehasavested
interestinwhatyouchoose.Salespeoplequicklylearnthatmanipulationofthecontextin
whichcustomersseeagoodcanprofoundlyinfluencepreferences.Exceptforsuchcases
ofdeliberatemanipulation,thereisapresumptionthatthecomparativejudgment,which
necessarilyinvolvesSystem2,ismorelikelytobestablethansingleevaluations,which
oftenreflecttheintensityofemotionalresponsesofSystem1.Wewouldexpectthatany
institutionthatwishestoelicitthoughtfuljudgmentswouldseektoprovidethejudgeswith
abroadcontextfortheassessmentsofindividualcases.IwassurprisedtolearnfromCass
Sunstein that jurors who are to assess punitive damages are explicitly prohibited from
considering other cases. The legal system, contrary to psychological common sense,
favorssingleevaluation.
In another study of incoherence in the legal system, Sunstein compared the
administrative punishments that can be imposed by different U.S. government agencies
including the Occupational Safety and Health Administration and the Environmental
Protection Agency. He concluded that “within categories, penalties seem extremely
sensible,atleastinthesensethatthemoreseriousharmsarepunishedmoreseverely.For
occupationalsafetyandhealthviolations,thelargestpenaltiesareforrepeatedviolations,
thenextlargestforviolationsthatarebothwillfulandserious,andtheleastseriousfor
failurestoengageintherequisiterecord-keeping.”Itshouldnotsurpriseyou,however,
thatthesizeofpenaltiesvariedgreatlyacrossagencies,inamannerthatreflectedpolitics
andhistorymorethananyglobalconcernforfairness.Thefinefora“seriousviolation”of
theregulationsconcerningworkersafetyiscappedat$7,000,whileaviBmaknseflected
polationoftheWildBirdConservationActcanresultinafineofupto$25,000.Thefines
aresensibleinthecontextofotherpenaltiessetbyeachagency,buttheyappearoddwhen
comparedtoeachother.Asintheotherexamplesinthischapter,youcanseetheabsurdity
only when the two cases are viewed together in a broad frame. The system of
administrativepenaltiesiscoherentwithinagenciesbutincoherentglobally.
SpeakingofReversals
“TheBTUunits meantnothingto meuntilI sawhowmuch air-conditioning units
vary.Jointevaluationwasessential.”
“You say this was an outstanding speech because you compared it to her other
speeches.Comparedtoothers,shewasstillinferior.”
“It is often the case that when you broaden the frame, you reach more reasonable
decisions.”
“When you see cases in isolation, you are likely to be guided by an emotional
reactionofSystem1.”
P
FramesandReality
ItalyandFrancecompetedin the2006 finaloftheWorldCup. The nexttwosentences
bothdescribetheoutcome:“Italywon.”“Francelost.”Dothosestatementshavethesame
meaning?Theanswerdependsentirelyonwhatyoumeanbymeaning.
Forthepurposeoflogicalreasoning,thetwodescriptionsoftheoutcomeofthematch
areinterchangeablebecausetheydesignatethesamestateoftheworld.Asphilosophers
say,theirtruthconditionsareidentical:ifoneofthesesentencesistrue,thentheotheris
true as well. This is how Econs understand things. Their beliefs and preferences are
reality-bound.Inparticular,theobjectsoftheirchoicesarestatesoftheworld,whichare
notaffectedbythewordschosentodescribethem.
There is another sense of meaning, in which “Italy won” and “France lost” do not
havethesamemeaningatall.Inthissense,themeaningofasentenceiswhathappensin
yourassociativemachinerywhileyouunderstandit.Thetwosentencesevokemarkedly
differentassociations.“Italywon”evokesthoughtsoftheItalianteamandwhatitdidto
win.“Francelost”evokesthoughtsoftheFrenchteamandwhatitdidthatcauseditto
lose,includingthememorableheadbuttofanItalianplayerbytheFrenchstarZidane.In
terms of the associations they bring to mind—how System 1 reacts to them—the two
sentences really “mean” different things. The fact that logically equivalent statements
evoke different reactions makes it impossible for Humans to be as reliably rational as
Econs.
EmotionalFraming
AmosandIappliedthelabelofframingeffectstotheunjustifiedinfluencesofformulation
onbeliefsanCondpreferences.Thisisoneoftheexamplesweused:
Wouldyouacceptagamblethatoffersa10%chancetowin$95anda90%chanceto
lose$5?
Wouldyoupay$5toparticipateinalotterythatoffersa10%chancetowin$100and
a90%chancetowinnothing?
First,takeamomenttoconvinceyourselfthatthetwoproblemsareidentical.Inbothof
themyoumustdecidewhethertoacceptanuncertainprospectthatwillleaveyoueither
richerby$95orpoorerby$5.Someonewhosepreferencesarereality-boundwouldgive
the same answer to both questions, but such individuals are rare. In fact, one version
attractsmanymorepositiveanswers:thesecond.Abadoutcomeismuchmoreacceptable
ifitisframedasthecostofalotteryticketthatdidnotwinthanifitissimplydescribedas
losingagamble.Weshouldnotbesurprised:lossesevokesstrongernegativefeelingsthan
costs.Choicesarenotreality-boundbecauseSystem1isnotreality-bound.
Theproblem we constructedwas influencedby whatwe had learnedfrom Richard
Thaler,whotoldusthatwhenhewasagraduatestudenthehadpinnedonhisboardacard
thatsaidcostsarenotlosses.Inhisearlyessayonconsumerbehavior,Thalerdescribed
the debate about whether gas stations would be allowed to charge different prices for
purchases paid with cash or on credit. The credit-card lobby pushed hard to make
differentialpricingillegal,butithadafallbackposition:thedifference,ifallowed,would
belabeleda cashdiscount,not acreditsurcharge.Theirpsychology was sound:people
willmorereadilyforgoadiscountthanpaya surcharge.Thetwomaybeeconomically
equivalent,buttheyarenotemotionallyequivalent.
In an elegant experiment, a team of neuroscientists at University College London
combinedastudyofframingeffectswithrecordingsofactivityindifferentareasofthe
brain.Inordertoprovidereliablemeasuresofthebrainresponse,theexperimentconsisted
ofmanytrials.Figure14illustratesthetwostagesofoneofthesetrials.
First,thesubjectisaskedtoimaginethatshereceivedanamountofmoney,inthis
example£50.
Thesubjectisthenaskedtochoosebetweenasureoutcomeandagambleonawheel
ofchance.Ifthewheelstopsonwhiteshe“receives”theentireamount;ifitstopsonblack
shegets nothing. Thesure outcome issimply the expectedvalue of thegamble, in this
caseagainof£20.
Figure14
Asshown,thesamesureoutcomecanbeframedintwodifferentways:asKEEP£20
orasLOSE£30.Theobjectiveoutcomesarepreciselyidenticalinthetwoframes,anda
reality-bound Econ would respond to both in the same way—selecting either the sure
thingorthegambleregardlessoftheframe—butwealreadyknowthattheHumanmindis
notboundtoreality.Tendenciestoapproachoravoidareevokedbythewords,andwe
expectSystem1tobebiasedinfavorofthesureoptionwhenitisdesignatedasKEEP
andagainstthatsameoptionwhenitisdesignatedasLOSE.
Theexperimentconsistedofmanytrials,andeachparticipantencountereBonp>
Theactivityofthebrainwasrecordedasthesubjectsmadeeachdecision.Later,the
trialswereseparatedintotwocategories:
1Trialsonwhichthesubject’schoiceconformedtotheframe
preferredthesurethingintheKEEPversion
preferredthegambleintheLOSSversion
2Trialsinwhichthechoicedidnotconformtotheframe.
Theremarkableresultsillustratethepotentialofthenewdisciplineofneuroeconomics—
thestudyofwhata person’s brain does while he makesdecisions.Neuroscientistshave
runthousandsofsuchexperiments,andtheyhavelearnedtoexpectparticularregionsof
thebrainto“lightup”—indicatingincreasedflowofoxygen,whichsuggestsheightened
neuralactivity—dependingonthenatureofthetask.Differentregionsareactivewhenthe
individualattendstoavisualobject,imagineskickingaball,recognizesaface,orthinks
of a house. Other regions light up when the individual is emotionally aroused, is in
conflict,or concentrates onsolving aproblem. Althoughneuroscientistscarefully avoid
thelanguageof“thispartofthebraindoessuchandsuch…,”theyhavelearnedagreat
dealaboutthe“personalities”ofdifferentbrainregions,andthecontributionofanalyses
ofbrainactivitytopsychologicalinterpretationhasgreatlyimproved.Theframingstudy
yieldedthreemainfindings:
A region that is commonly associated with emotional arousal (the amygdala) was
mostlikelytobeactivewhensubjects’choicesconformedtotheframe.Thisisjustas
we would expect if the emotionally loaded words KEEP and LOSE produce an
immediatetendencytoapproachthesurething(whenitisframedasagain)oravoid
it(whenitisframedasaloss).Theamygdalaisaccessedveryrapidlybyemotional
stimuli—anditisalikelysuspectforinvolvementinSystem1.
A brain region known to be associated with conflict and self-control (the anterior
cingulate) was more active when subjects did not do what comes naturally—when
theychosethesurethinginspiteofitsbeinglabeledLOSE.Resistingtheinclination
ofSystem1apparentlyinvolvesconflict.
Themost“rational”subjects—thosewhoweretheleastsusceptibletoframingeffects
—showed enhanced activity in a frontal area of the brain that is implicated in
combining emotion and reasoning to guide decisions. Remarkably, the “rational”
individualswerenotthosewhoshowedthestrongestneuralevidenceofconflict.It
appearsthattheseeliteparticipantswere(often,notalways)reality-boundwithlittle
conflict.
Byjoiningobservationsofactualchoiceswithamappingofneuralactivity,thisstudy
providesagoodillustrationofhowtheemotionevokedbyawordcan“leak”intothefinal
choice.
AnexperimentthatAmoscarriedoutwithcolleaguesatHarvardMedicalSchoolis
the classic example of emotional framing. Physician participants were given statistics
abouttheoutcomesoftwotreatmentsforlungcancer:surgeryandradiation.Thefive-year
survivalratesclearlyfavorsurgery,butintheshorttermsurgeryisriskierthanradiation.
Half the participants read statistics about survival rates, the others received the same
informationintermsofmortalityrates.Thetwodescriptionsoftheshort-termoutcomes
ofsurgerywere:
Theone-monthsurvivalrateis90%.
Thereis10%mortalityinthefirstmonth.
Youalreadyknowtheresults:surgerywasmuchmorepopularintheformerframe(84%
of physicians chose it) than in the latter (where 50% favored radiation). The logical
equivalence of the two descriptions is transparent, and a reality-bound decision maker
wouldmakethesamechoiceregardlessofwhichversionshesaw.ButSystem1,aswe
havegottentoknowit,israrelyindifferenttoemotionalwords:mortalityisbad,survival
isgood,and90%survivalsoundsencouragingwhereas10%mortalityisfrightening.An
importantfindingofthestudyisthatphysicianswerejustassusceptibletotheframing
effect as medically unsophisticated people (hospital patients and graduate students in a
businessschool).Medicaltrainingis,evidently,nodefenseagainstthepowerofframing.
The KEEP–LOSE study and the survival–mortality experiment differed in one
importantrespect.Theparticipantsin thebrain-imagingstudyhad many trialsinwhich
they encountered the different frames. They had an opportunity to recognize the
distractingeffectsoftheframesandtosimplifytheirtaskbyadoptingacommonframe,
perhaps by translating the LOSE amount into its KEEP equivalent. It would take an
intelligentperson(andanalertSystem2)tolearntodothis,andthefewparticipantswho
managed the feat were probably among the “rational” agents that the experimenters
identified.Incontrast,thephysicianswhoreadthestatisticsaboutthetwotherapiesinthe
survivalframehadnoreasontosuspectthattheywouldhavemadeadifferentchoiceif
theyhadheardthesamestatisticsframedintermsofmortality.Reframingiseffortfuland
System2isnormallylazy.Unlessthereisanobviousreasontodootherwise,mostofus
passively accept decision problems as they are framed and therefore rarely have an
opportunitytodiscovertheextenttowhichourpreferencesareframe-boundratherthan
reality-bound.
EmptyIntuitions
AmosandIintroducedourdiscussionofframingbyanexamplethathasbecomeknown
asthe“Asiandiseaseproblem”:
Imagine that the United States is preparing for the outbreak of an unusual Asian
disease,whichisexpectedtokill600people.Twoalternativeprogramstocombatthe
disease have been proposed. Assume that the exact scientific estimates of the
consequencesoftheprogramsareasfollows:
IfprogramAisadopted,200peoplewillbesaved.
IfprogramBisadopted,thereisaone-thirdprobabilitythat600peoplewillbe
savedandatwo-thirdsprobabilitythatnopeoplewillbesaved.
A substantial majority of respondents choose program A: they prefer the certain option
overthegamble.
Theoutcomesoftheprogramsareframeddifferentlyinasecondversion:
IfprogramAisadopted,400peoplewilldie.
IfprogramB’isadopted,thereisaone-thirdprobabilitythatnobodywilldieanda
two-thirdsprobabilitythat600peoplewilldie.
Lookcloselyandcomparethetwoversions:theconsequencesofprogramsAandAare
identical;soaretheconsequencesofprogramsBandB’.Inthesecondframe,however,a
largemajorityofpeoplechoosethegamble.
Thedifferentchoicesinthetwoframesfitprospecttheory,inwhichchoicesbetween
gamblesandsurethingsareresolveddifferently,dependingonwhethertheoutcomesare
goodorbad.Decisionmakerstendtopreferthesurethingoverthegamble(theyarerisk
averse) when the outcomes are good. They tend to reject the sure thing and accept the
gamble(theyareriskseeking)whenbothoutcomesarenegative.Theseconclusionswere
wellestablishedforchoicesaboutgamblesandsurethingsinthedomainofmoney.The
diseaseproblemshowsthatthesameruleapplieswhentheoutcomesaremeasuredinlives
savedorlost.Inthiscontext,aswell,theframingexperimentrevealsthatrisk-averseand
risk-seeking preferences are not reality-bound. Preferences between the same objective
outcomesreversewithdifferentformulations.
AnexperiencethatAmossharedwithmeaddsa grimnotetothestory.Amoswas
invitedtogiveaspeechtoagroupofpublic-healthprofessionals—thepeoplewhomake
decisions about vaccines and other programs. He took the opportunity to present them
withtheAsiandiseaseproblem:halfsawthe“lives-saved”version,theothersanswered
the “lives-lost” question. Like other people, these professionals were susceptible to the
framingeffects.Itissomewhatworryingthattheofficialswhomakedecisionsthataffect
everyone’s health can be swayed by such a superficial manipulation—but we must get
usedtotheideathatevenimportantdecisionsareinfluenced,ifnotgoverned,bySystem
1.
Even more troubling is what happens when people are confronted with their
inconsistency:“Youchosetosave200livesforsureinoneformulationandyouchoseto
gambleratherthanaccept400deathsintheother.Nowthatyouknowthesechoiceswere
inconsistent, how do you decide?” The answer is usually embarrassed silence. The
intuitionsthatdeterminedtheoriginalchoicecamefromSystem1andhadnomoremoral
basisthandidthepreferenceforkeeping£20ortheaversiontolosing£30.Savinglives
withcertaintyisgood,deathsarebad.MostpeoplefindthattheirSystem2hasnomoral
intuitionsofitsowntoanswerthequestion.
IamgratefultothegreateconomistThomasSchellingformyfavoriteexampleofa
framingeffect,whichhedescribedinhisbookChoiceandConsequence.Schelling’sbook
was written before our work on framing was published, and framing was not his main
concern.HereportedonhisexperienceteachingaclassattheKennedySchoolatHarvard,
in which Bon he linthe topic was child exemptions in the tax code. Schelling told his
studentsthatastandardexemptionisallowedforeachchild,andthattheamountofthe
exemption is independent of the taxpayers income. He asked their opinion of the
followingproposition:
Shouldthechildexemptionbelargerfortherichthanforthepoor?
YourownintuitionsareverylikelythesameasthoseofSchelling’sstudents:theyfound
theideaoffavoringtherichbyalargerexemptioncompletelyunacceptable.
Schellingthenpointedoutthatthetaxlawisarbitrary.Itassumesachildlessfamilyas
thedefaultcaseandreducesthetaxbytheamountoftheexemptionforeachchild.The
taxlawcouldofcourseberewrittenwithanotherdefaultcase:afamilywithtwochildren.
Inthisformulation,familieswithfewerthanthedefaultnumberofchildrenwouldpaya
surcharge.Schellingnowaskedhisstudentstoreporttheirviewofanotherproposition:
Shouldthechildlesspoorpayaslargeasurchargeasthechildlessrich?
Hereagainyouprobablyagreewiththestudents’reactiontothisidea,whichtheyrejected
withasmuchvehemenceasthefirst.ButSchellingshowedhisclassthattheycouldnot
logicallyrejectbothproposals.Setthetwoformulationsnexttoeachother.Thedifference
betweenthetaxduebyachildlessfamilyandbyafamilywithtwochildrenisdescribed
asa reductionoftaxinthefirstversionandasanincreaseinthesecond. Ifinthefirst
versionyouwantthepoortoreceivethesame(orgreater)benefitastherichforhaving
children,thenyoumustwantthepoortopayatleastthesamepenaltyastherichforbeing
childless.
We can recognize System 1 at work. It delivers an immediate response to any
question about rich and poor: when in doubt, favor the poor. The surprising aspect of
Schelling’s problem is that this apparently simple moral rule does not work reliably. It
generatescontradictoryanswerstothesameproblem,dependingonhowthatproblemis
framed.Andofcourseyoualreadyknowthequestionthatcomesnext.Nowthatyouhave
seenthatyourreactionstotheproblemareinfluencedbytheframe,whatisyouranswerto
thequestion:Howshouldthetaxcodetreatthechildrenoftherichandthepoor?
Hereagain,youwillprobablyfindyourselfdumbfounded.Youhavemoralintuitions
aboutdifferencesbetweentherichandthepoor,buttheseintuitionsdependonanarbitrary
reference point, and they are not about the real problem. This problem—the question
aboutactualstatesoftheworld—ishowmuchtaxindividualfamiliesshouldpay,howto
fill the cells in the matrix of the tax code. You have no compelling moral intuitions to
guide you in solving that problem. Your moral feelings are attached to frames, to
descriptionsofrealityratherthantorealityitself.Themessageaboutthenatureofframing
is stark: framing should not be viewed as an intervention that masks or distorts an
underlying preference. At least in this instance—and also in the problems of the Asian
diseaseandofsurgeryversusradiationforlungcancer—thereisnounderlyingpreference
thatismaskedordistortedbytheframe.Ourpreferencesareaboutframedproblems,and
ourmoralintuitionsareaboutdescriptions,notaboutsubstance.
GoodFrames
Not all frames are equal, and s Bon nd t=“4%” wome frames are clearly better than
alternativewaystodescribe(ortothinkabout)thesamething.Considerthefollowingpair
ofproblems:
Awomanhasboughttwo$80ticketstothetheater.Whenshearrivesatthetheater,
she opens her wallet and discovers that the tickets are missing. Will she buy two
moreticketstoseetheplay?
Awoman goes tothe theater, intendingtobuy twoticketsthat cost$80 each. She
arrivesatthetheater,opensherwallet,anddiscoverstoherdismaythatthe$160with
whichshewasgoingtomakethepurchaseismissing.Shecouldusehercreditcard.
Willshebuythetickets?
Respondents who see only one version of this problem reach different conclusions,
depending on the frame. Most believe that the woman in the first story will go home
without seeing the show if she has lost tickets, and most believe that she will charge
ticketsfortheshowifshehaslostmoney.
Theexplanationshouldalreadybefamiliar—thisprobleminvolvesmentalaccounting
andthesunk-costfallacy.Thedifferentframesevokedifferentmentalaccounts,andthe
significanceofthelossdependsontheaccounttowhichitisposted.Whenticketstoa
particularshowarelost,itisnaturaltopostthemtotheaccountassociatedwiththatplay.
Thecostappearstohavedoubledandmaynowbemorethantheexperienceisworth.In
contrast,alossofcashischargedtoa“generalrevenue”account—thetheaterpatronis
slightlypoorerthanshehadthoughtshewas,andthequestionsheislikelytoaskherself
is whether the small reduction in her disposable wealth will change her decision about
payingfortickets.Mostrespondentsthoughtitwouldnot.
Theversioninwhichcashwaslostleadstomorereasonabledecisions.Itisabetter
frame because the loss, even if tickets were lost, is “sunk,” and sunk costs should be
ignored. History is irrelevant and the only issue that matters is the set of options the
theaterpatronhasnow,andtheirlikelyconsequences.Whatevershelost,therelevantfact
isthatsheislesswealthythanshewasbeforesheopenedherwallet.Ifthepersonwho
lostticketsweretoaskformyadvice,thisiswhatIwouldsay:“Wouldyouhavebought
ticketsifyouhadlosttheequivalentamountofcash?Ifyes,goaheadandbuynewones.”
Broaderframesandinclusiveaccountsgenerallyleadtomorerationaldecisions.
Inthenextexample,twoalternativeframesevokedifferentmathematicalintuitions,
and one is much superior to the other. In an article titled “The MPG Illusion,” which
appearedinScience magazine in2008, thepsychologists Richard Larrickand JackSoll
identifiedacaseinwhichpassiveacceptanceofamisleadingframehassubstantialcosts
andseriouspolicyconsequences.Mostcarbuyerslistgasmileageasoneofthe factors
thatdeterminetheirchoice;theyknowthathigh-mileagecarshaveloweroperatingcosts.
Buttheframe thathastraditionally been usedin theUnitedStates—milesper gallon—
provides very poor guidance to the decisions of both individuals and policy makers.
Considertwocarownerswhoseektoreducetheircosts:
Adamswitchesfromagas-guzzlerof12mpgtoaslightlylessvoraciousguzzlerthat
runsat14mpg.
TheenvironmentallyvirtuousBethswitchesfromaBonssesfrom30mpgcartoone
thatrunsat40mpg.
Suppose both drivers travel equal distances over a year. Who will save more gas by
switching?YoualmostcertainlysharethewidespreadintuitionthatBeth’sactionismore
significantthanAdam’s:shereducedmpgby10milesratherthan2,andbyathird(from
30to40)ratherthanasixth(from12to14).NowengageyourSystem2andworkitout.
Ifthetwocarownersbothdrive10,000miles,Adamwillreducehisconsumptionfroma
scandalous833gallonstoastillshocking714gallons,forasavingof119gallons.Beth’s
useoffuelwilldropfrom333gallonsto250,savingonly83gallons.Thempgframeis
wrong, and it should be replaced by the gallons-per-mile frame (or liters-per–100
kilometers, which is used in most other countries). As Larrick and Soll point out, the
misleading intuitions fostered by the mpg frame are likely to mislead policy makers as
wellascarbuyers.
Under President Obama, Cass Sunstein served as administrator of the Office of
Information and Regulatory Affairs. With Richard Thaler, Sunstein coauthored Nudge,
whichisthebasicmanualforapplyingbehavioraleconomicstopolicy.Itwasnoaccident
thatthe“fueleconomyandenvironment”stickerthatwillbedisplayedoneverynewcar
starting in 2013 will for the first time in the United States include the gallons-per-mile
information.Unfortunately,thecorrectformulationwillbeinsmallprint,alongwiththe
morefamiliarmpginformationinlargeprint,butthemoveisintherightdirection.The
five-yearintervalbetweenthepublicationof“TheMPGIllusion”andtheimplementation
of a partial correction is probably a speed record for a significant application of
psychologicalsciencetopublicpolicy.
A directive about organ donation in case of accidental death is noted on an
individual’sdriverlicenseinmanycountries.Theformulationofthatdirectiveisanother
caseinwhichoneframeisclearlysuperiortotheother.Fewpeoplewouldarguethatthe
decision of whether or not to donate one’s organs is unimportant, but there is strong
evidencethat most peoplemake theirchoice thoughtlessly. The evidencecomes froma
comparisonoftherate oforgandonationin Europeancountries,whichreveals startling
differencesbetweenneighboringandculturallysimilarcountries.Anarticlepublishedin
2003notedthattherateoforgandonationwascloseto100%inAustriabutonly12%in
Germany,86%inSwedenbutonly4%inDenmark.
Theseenormousdifferencesareaframingeffect,whichiscausedbytheformatofthe
critical question. The high-donation countries have an opt out form, where individuals
who wish not to donate must check an appropriate box. Unless they take this simple
action,theyareconsideredwillingdonors.Thelow-contributioncountrieshaveanopt-in
form:youmustcheckaboxtobecomeadonor.Thatisall.Thebestsinglepredictorof
whetherornotpeoplewilldonatetheirorgansisthedesignationofthedefaultoptionthat
willbeadoptedwithouthavingtocheckabox.
UnlikeotherframingeffectsthathavebeentracedtofeaturesofSystem1,theorgan
donationeffectisbestexplainedbythelazinessofSystem2.Peoplewillchecktheboxif
theyhavealreadydecidedwhattheywishtodo.Iftheyareunpreparedforthequestion,
theyhavetomaketheeffortofthinkingwhethertheywanttocheckthebox.Iimaginean
organdonationforminwhichpeoplearerequiredtosolveamathematicalprobleminthe
boxthatcorrespondstotheirdecision.Oneoftheboxescontainstheproblem2+2=?
Theproblemintheotherboxis13×37=?Therateofdonationswouldsurelybeswayed.
When the role of formulation is acknowledged, a policy question arises: Which
formulationshouldbeadopted?Inthiscase,theanswerisstraightforward.Ifyoubelieve
thatalargesupplyofdonatedorgansisgoodforsociety,youwillnotbeneutralbetweena
formulation that yields almost 100% donations and another formulation that elicits
donationsfrom4%ofdrivers.
As we have seen again and again, an important choice is controlled by an utterly
inconsequential feature of the situation. This is embarrassing—it is not how we would
wishtomakeimportantdecisions.Furthermore,itisnothowweexperiencetheworkings
ofourmind,buttheevidenceforthesecognitiveillusionsisundeniable.
Countthatasapointagainsttherational-agenttheory.Atheorythatisworthyofthe
nameassertsthatcertaineventsareimpossible—theywillnothappenifthetheoryistrue.
Whenan“impossible”eventisobserved,thetheoryisfalsified.Theoriescansurvivefora
longtimeafterconclusiveevidencefalsifiesthem,andtherational-agentmodelcertainly
survivedtheevidencewehaveseen,andmuchotherevidenceaswell.
Thecaseoforgandonationshowsthatthedebateabouthumanrationalitycanhavea
largeeffectinthereal world. A significantdifferencebetweenbelieversintherational-
agentmodelandtheskepticswhoquestionitisthatthebelieverssimplytakeitforgranted
that the formulation of a choice cannot determine preferences on significant problems.
Theywillnotevenbeinterestedininvestigatingtheproblem—andso we are oftenleft
withinferioroutcomes.
Skeptics about rationality are not surprised. They are trained to be sensitive to the
powerofinconsequentialfactorsasdeterminantsofpreference—myhopeisthatreaders
ofthisbookhaveacquiredthissensitivity.
SpeakingofFramesandReality
“Theywillfeelbetteraboutwhathappenediftheymanagetoframetheoutcomein
termsofhowmuchmoneytheykeptratherthanhowmuchtheylost.”
“Let’sreframetheproblembychangingthereferencepoint.Imaginewedidnotown
it;howmuchwouldwethinkitisworth?”
“Chargethelosstoyourmentalaccountof‘generalrevenue’—youwillfeelbetter!”
“Theyaskyoutochecktheboxtooptoutoftheirmailinglist.Theirlistwouldshrink
iftheyaskedyoutocheckaboxtooptin!”
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Part5
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TwoSelves
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TwoSelves
Thetermutilityhashadtwodistinctmeaningsinitslonghistory.JeremyBenthamopened
his Introduction to the Principles of Morals and Legislation with the famous sentence
“Nature has placed mankind under the governance of two sovereign masters, pain and
pleasure.Itisforthemalonetopointoutwhatweoughttodo,aswellastodetermine
whatweshalldo.”Inanawkwardfootnote,Benthamapologizedforapplyingtheword
utility to these experiences, saying that he had been unable to find a better word. To
distinguishBentham’sinterpretationoftheterm,Iwillcallitexperiencedutility.
Forthelast100years,economistshaveusedthesamewordtomeansomethingelse.
Aseconomistsanddecisiontheoristsapplytheterm,itmeans“wantability”—andIhave
calleditdecisionutility.Expectedutilitytheory,forexample,isentirelyabouttherulesof
rationalitythatshouldgoverndecisionutilities;ithasnothingatalltosayabouthedonic
experiences.Ofcourse,thetwoconceptsofutilitywillcoincideifpeoplewantwhatthey
willenjoy,andenjoywhattheychoseforthemselves—andthisassumptionofcoincidence
is implicit in the general idea that economic agents are rational. Rational agents are
expected to know their tastes, both present and future, and they are supposed to make
gooddecisionsthatwillmaximizetheseinterests.
ExperiencedUtility
Myfascinationwiththepossiblediscrepanciesbetweenexperiencedutilityanddecision
utilitygoesbackalongway.WhileAmosandIwerestillworkingonprospecttheory,I
formulatedapuzzle,whichwentlikethis:imagineanindividualwhoreceivesonepainful
injectioneveryday.Thereisnoadaptation;thepainisthesamedaytoday.Willpeople
attachthesamevaluetoreducingthenumberofplannedinjectionsfrom20to18asfrom
6to4?Isthereanyjustificationforadistinction?
Ididnotcollectdata,becausetheoutcomewasevident.Youcanverifyforyourself
thatyouwouldpaymoretoreducethenumberofinjectionsbyathird(from6to4)than
byonetenth(from20to18).Thedecisionutilityofavoidingtwoinjectionsishigherin
thefirstcasethaninthesecond,andeveryonewillpaymoreforthefirstreductionthan
forthesecond.Butthisdifferenceisabsurd.Ifthepaindoesnotchangefromdaytoday,
whatcouldjustifyassigningdifferentutilitiestoareductionofthetotalamountofpainby
twoinjections,dependingonthenumberofpreviousinjections?Inthetermswewould
usetoday,thepuzzleintroducedtheideathatexperiencedutilitycouldbemeasuredbythe
numberofinjections.Italsosuggestedthat,atleastinsomecases,experiencedutilityis
thecriterionbywhichadecisionshouldbeassessed.Adecisionmakerwhopaysdifferent
amountstoachievethesamegainofexperiencedutility(orbesparedthesameloss)is
makingamistake.Youmayfindthisobservationobvious,butindecisiontheorytheonly
basisforjudgingthatadecisioniswrongisinconsistencywithotherpreferences.Amos
andIdiscussedtheproblembutwedidnotpursueit.Manyyearslater,Ireturnedtoit.
ExperienceandMemory
How can experienced utility be measured? How should we answer questions such as
“How much pain did Helen suffer during the medical procedure?” or “How much
enjoymentdidshegetfromher20minutesonthebeach?”TJonet8221;TJheBritish
economist Francis Edgeworth speculated about this topic in the nineteenth century and
proposedtheideaofa“hedonimeter,”animaginaryinstrumentanalogoustothedevices
usedinweather-recordingstations,whichwouldmeasurethelevelofpleasureorpainthat
anindividualexperiencesatanymoment.
Experiencedutilitywouldvary,muchasdailytemperatureorbarometricpressuredo,
andtheresultswouldbeplottedasafunctionoftime.Theanswertothequestionofhow
muchpainorpleasureHelenexperiencedduringhermedicalprocedureorvacationwould
be the “area under the curve.” Time plays a critical role in Edgeworth’s conception. If
Helen stays on the beach for 40 minutes instead of 20, and her enjoyment remains as
intense, then the total experienced utility of that episode doubles, just as doubling the
number of injections makes a course of injections twice as bad. This was Edgeworth’s
theory,andwenowhaveapreciseunderstandingoftheconditionsunderwhichhistheory
holds.
Thegraphsinfigure15showprofilesoftheexperiencesoftwopatientsundergoinga
painful colonoscopy, drawn from a study that Don Redelmeier and I designed together.
Redelmeier,aphysicianandresearcherattheUniversityofToronto,carrieditoutinthe
early1990s.Thisprocedureisnowroutinelyadministeredwithananestheticaswellasan
amnesicdrug,butthesedrugswerenotaswidespreadwhenourdatawerecollected.The
patientswerepromptedevery60secondstoindicatethelevelofpaintheyexperiencedat
the moment. The data shown are on a scale where zero is “no pain at all” and 10 is
“intolerable pain.” As you can see, the experience of each patient varied considerably
duringtheprocedure,whichlasted8minutesforpatientAand24minutesforpatientB
(thelastreadingofzeropainwasrecordedaftertheendoftheprocedure).Atotalof154
patientsparticipatedintheexperiment;theshortestprocedurelasted4minutes,thelongest
69minutes.
Next,consideraneasyquestion:Assumingthatthetwopatientsusedthescaleofpain
similarly,whichpatientsufferedmore?Nocontest.Thereisgeneralagreementthatpatient
Bhadtheworsetime.PatientBspentatleastasmuchtimeaspatientAatanylevelof
pain,andthe“areaunderthecurve”isclearlylargerforBthanforA.Thekeyfactor,of
course,isthatB’sprocedurelastedmuchlonger.Iwillcallthemeasuresbasedonreports
ofmomentarypainhedonimetertotals.
Figure15
Whentheprocedurewasover,allparticipantswereaskedtorate“thetotalamountof
pain”theyhadexperiencedduringtheprocedure.Thewordingwasintendedtoencourage
themtothinkoftheintegralofthepaintheyhadreported,reproducingthehedonimeter
totals.Surprisingly,thepatientsdidnothingofthekind.Thestatisticalanalysisrevealed
twofindings,whichillustrateapatternwehaveobservedinotherexperiments:
Peak-endrule:Theglobalretrospectiveratingwaswellpredictedbytheaverageof
thelevelofpainreportedattheworstmomentoftheexperienceandatitsend.
Duration neglect: The duration of the procedure had no effect whatsoever on the
ratingsoftotalpain.
YoucannowapplytheserulestotheprofilesofpatientsAandB.TheworstratiJoner
soeveronng(8onthe10-pointscale)wasthesameforbothpatients,butthelastrating
beforetheendoftheprocedurewas7forpatientAandonly1forpatientB.Thepeak-end
averagewastherefore7.5forpatientAandonly4.5forpatientB.Asexpected,patientA
retained a much worse memory of the episode than patient B. It was the bad luck of
patient A that the procedure ended at a bad moment, leaving him with an unpleasant
memory.
Wenowhaveanembarrassmentofriches:twomeasuresofexperiencedutility—the
hedonimetertotalandtheretrospectiveassessment—thataresystematicallydifferent.The
hedonimeter totals are computed by an observer from an individual’s report of the
experience of moments. We call these judgments duration-weighted, because the
computation of the “area under the curve” assigns equal weights to all moments: two
minutes of pain at level 9 is twice as bad as one minute at the same level of pain.
However, the findings of this experiment and others show that the retrospective
assessmentsareinsensitivetodurationandweighttwosingularmoments,thepeakandthe
end,muchmorethanothers.Sowhichshouldmatter?Whatshouldthephysiciando?The
choicehasimplicationsformedicalpractice.Wenotedthat:
Iftheobjectiveistoreducepatients’memoryofpain,loweringthepeakintensityof
paincouldbemoreimportantthanminimizingthedurationoftheprocedure.Bythe
samereasoning,gradualreliefmaybepreferabletoabruptreliefifpatientsretaina
bettermemorywhenthepainattheendoftheprocedureisrelativelymild.
Iftheobjectiveistoreducetheamountofpainactuallyexperienced,conductingthe
procedure swiftly may be appropriate even if doing so increases the peak pain
intensityandleavespatientswithanawfulmemory.
Whichofthetwoobjectivesdidyoufindmostcompelling?Ihavenotconductedaproper
survey,butmyimpressionisthatastrongmajoritywillcomedowninfavorofreducing
the memory of pain. I find it helpful to think of this dilemma as a conflict of interests
between two selves (which do not correspond to the two familiar systems). The
experiencing self is the one that answers the question: “Does it hurt now?” The
remembering self is the one that answers the question: “How was it, on the whole?”
Memoriesareallwegettokeepfromourexperienceofliving,andtheonlyperspective
thatwecanadoptaswethinkaboutourlivesisthereforethatoftherememberingself.
A comment I heard from a member of the audience after a lecture illustrates the
difficulty of distinguishing memories from experiences. He told of listening raptly to a
longsymphonyon a discthatwasscratchedneartheend,producingashockingsound,
andhereportedthatthebadending“ruinedthewholeexperience.”Buttheexperiencewas
notactuallyruined,onlythememoryofit.Theexperiencingselfhadhadanexperience
thatwasalmostentirelygood,andthebadendcouldnotundoit,becauseithadalready
happened.Myquestionerhadassigned the entireepisodeafailinggradebecause it had
endedverybadly,butthatgradeeffectivelyignored40minutesofmusicalbliss.Doesthe
actualexperiencecountfornothing?
Confusingexperiencewiththememoryofitisacompellingcognitiveillusion—and
it is the substitution that makes us believe a past experience can be ruined. The
experiencingselfdoesnothaveavoice.Therememberingselfissometimeswrong,butit
istheonethatkeepsscoreandgovernswhatwelearnfromliving,anditistheonethat
makesdecisionsJonthaperienci.Whatwelearnfromthepastistomaximizethequalities
ofourfuturememories,notnecessarilyofourfutureexperience.Thisisthetyrannyofthe
rememberingself.
WhichSelfShouldCount?
Todemonstratethedecision-makingpoweroftherememberingself,mycolleaguesandI
designed an experiment, using a mild form of torture that I will call the cold-hand
situation(itsuglytechnicalnameiscold-pressor).Participantsareaskedtoholdtheirhand
uptothewristinpainfullycoldwateruntiltheyareinvitedtoremoveitandareoffereda
warmtowel.Thesubjectsinourexperimentusedtheirfreehandtocontrolarrowsona
keyboard to provide a continuous record of the pain they were enduring, a direct
communicationfromtheirexperiencingself.Wechoseatemperaturethatcausedmoderate
buttolerablepain:thevolunteerparticipantswereofcoursefreetoremovetheirhandat
anytime,butnonechosetodoso.
Eachparticipantenduredtwocold-handepisodes:
The short episode consisted of 60 seconds of immersion in water at 14° Celsius,
which is experienced as painfully cold, but not intolerable. At the end of the 60
seconds, the experimenter instructed the participant to remove his hand from the
waterandofferedawarmtowel.
Thelongepisodelasted90seconds.Itsfirst60secondswereidenticaltotheshort
episode.Theexperimentersaidnothingatallattheendofthe60seconds.Insteadhe
openedavalvethatallowedslightlywarmerwatertoflowintothetub.Duringthe
additional30seconds,thetemperatureofthewaterrosebyroughly1°,justenough
formostsubjectstodetectaslightdecreaseintheintensityofpain.
Our participants were told that they would have three cold-hand trials, but in fact they
experiencedonlytheshortandthelongepisodes,each with a different hand.Thetrials
were separated by seven minutes. Seven minutes after the second trial, the participants
were given a choice about the third trial. They were told that one of their experiences
wouldberepeatedexactly,andwerefreetochoosewhethertorepeattheexperiencethey
hadhadwiththeirlefthandorwiththeirrighthand.Ofcourse,halftheparticipantshad
theshorttrialwiththelefthand,halfwiththeright;halfhadtheshorttrialfirst,halfbegan
withthelong,etc.Thiswasacarefullycontrolledexperiment.
The experiment was designed to create a conflict between the interests of the
experiencing and the remembering selves, and also between experienced utility and
decisionutility.Fromtheperspectiveoftheexperiencingself,thelongtrialwasobviously
worse. We expected the remembering self to have another opinion. The peak-end rule
predictsaworsememoryfortheshortthanforthelongtrial,anddurationneglectpredicts
that the difference between 90 seconds and 60 seconds of pain will be ignored. We
thereforepredictedthattheparticipantswouldhaveamorefavorable(orlessunfavorable)
memoryofthelongtrialandchoosetorepeatit.Theydid.Fully80%oftheparticipants
whoreportedthattheirpaindiminishedduringthefinalphaseofthelongerepisodeopted
torepeatit,therebydeclaringthemselveswillingtosuffer30secondsofneedlesspainin
theanticipatedthirdtrial.
The subjects who preferred the long episode were not masochists and did not
deliberately choose to expose themselves to the worse experience; they simply Jon the
heigmadeamistake.Ifwehadaskedthem,“Wouldyouprefera90-secondimmersionor
onlythefirstpartofit?”theywouldcertainlyhaveselectedtheshortoption.Wedidnot
usethesewords,however,andthesubjectsdidwhatcamenaturally:theychosetorepeat
the episode of which they had the less aversive memory. The subjects knew quite well
which of the two exposures was longer—we asked them—but they did not use that
knowledge. Their decision was governed by a simple rule of intuitive choice: pick the
optionyoulikethemost,ordisliketheleast.Rulesofmemorydeterminedhowmuchthey
disliked the two options, which in turn determined their choice. The cold-hand
experiment,likemyoldinjectionspuzzle,revealedadiscrepancybetweendecisionutility
andexperiencedutility.
Thepreferencesweobservedinthisexperimentareanotherexampleoftheless-is-
moreeffectthatwehaveencounteredonpreviousoccasions.OnewasChristopherHsee’s
studyinwhichaddingdishestoasetof24dishesloweredthetotalvaluebecausesomeof
theaddeddisheswerebroken.AnotherwasLinda,theactivistwomanwhoisjudgedmore
likelytobeafeministbanktellerthanabankteller.Thesimilarityisnotaccidental.The
sameoperatingfeatureofSystem1accountsforallthreesituations:System1represents
setsbyaverages,norms,andprototypes,notbysums.Eachcold-handepisodeisasetof
moments, which the remembering self stores as a prototypical moment. This leads to a
conflict. For an objective observer evaluating the episode from the reports of the
experiencingself,whatcountsisthe“areaunderthecurve”thatintegratespainovertime;
ithasthenatureofasum.Thememorythattherememberingselfkeeps,incontrast,isa
representativemoment,stronglyinfluencedbythepeakandtheend.
Of course, evolution could have designed animals’ memory to store integrals, as it
surelydoesinsomecases.Itisimportantforasquirrelto“know”thetotalamountoffood
it has stored, and a representation of the average size of the nuts would not be a good
substitute.However, the integral of pain or pleasure overtime maybe lessbiologically
significant.Weknow,forexample,thatratsshowdurationneglectforbothpleasureand
pain.Inoneexperiment,ratswereconsistentlyexposedtoasequenceinwhichtheonset
ofalightsignalsthatanelectricshockwillsoonbedelivered.Theratsquicklylearnedto
fearthelight,andtheintensityoftheirfearcouldbemeasuredbyseveralphysiological
responses.Themainfindingwasthatthedurationoftheshockhaslittleornoeffecton
fear—allthatmattersisthepainfulintensityofthestimulus.
Other classic studies showed that electrical stimulation of specific areas in the rat
brain (and of corresponding areas in the human brain) produce a sensation of intense
pleasure,so intensein somecases thatrats whocan stimulatetheir brainby pressinga
leverwilldieofstarvationwithouttakingabreaktofeedthemselves.Pleasurableelectric
stimulationcanbedeliveredinburststhatvaryinintensityandduration.Hereagain,only
intensitymatters.Uptoapoint,increasingthedurationofaburstofstimulationdoesnot
appear to increase the eagerness of the animal to obtain it. The rules that govern the
rememberingselfofhumanshavealongevolutionaryhistory.
Biologyvs.Rationality
Themostusefulideaintheinjectionspuzzlethatpreoccupiedmeyearsagowasthatthe
experienced utility of a series of equally painful injections can be measured, by simply
countingtheinjections.Ifallinjectionsareequallyaversive,then20ofthemaretwiceas
badas10,andJoneoeeareductionfrom20to18andareductionfrom6to4areequally
valuable. If the decision utility does not correspond to the experienced utility, then
something is wrong with the decision. The same logic played out in the cold-hand
experiment:anepisodeofpainthatlasts90secondsisworsethanthefirst60secondsof
thatepisode.Ifpeoplewillinglychoosetoendurethelongerepisode,somethingiswrong
with their decision. In my early puzzle, the discrepancy between the decision and the
experienceoriginated fromdiminishing sensitivity:the differencebetween 18and 20is
less impressive, and appears to be worth less, than the difference between 6 and 4
injections. In the cold-hand experiment, the error reflects two principles of memory:
durationneglectandthepeak-endrule.Themechanismsaredifferentbuttheoutcomeis
thesame:adecisionthatisnotcorrectlyattunedtotheexperience.
Decisionsthatdonotproducethebestpossibleexperienceanderroneousforecastsof
future feelings—both are bad news for believers in the rationality of choice. The cold-
handstudyshowedthatwecannotfullytrustourpreferencestoreflectourinterests,even
iftheyarebasedonpersonalexperience,andevenifthememoryofthatexperiencewas
laiddownwithinthelastquarterofanhour!Tastesanddecisionsareshapedbymemories,
andthememoriescanbewrong.Theevidencepresentsaprofoundchallengetotheidea
thathumanshaveconsistentpreferencesandknowhowtomaximizethem,acornerstone
ofthe rational-agentmodel.An inconsistencyis builtintothe designof ourminds. We
havestrongpreferencesaboutthe duration of ourexperiencesofpainand pleasure.We
wantpaintobebriefandpleasuretolast.Butourmemory,afunctionofSystem1,has
evolvedtorepresentthemostintensemomentofanepisodeofpainorpleasure(thepeak)
andthefeelingswhentheepisodewasatitsend.Amemorythatneglectsdurationwillnot
serveourpreferenceforlongpleasureandshortpains.
SpeakingofTwoSelves
“You are thinking of your failed marriage entirely from the perspective of the
rememberingself.Adivorceislikeasymphonywithascreechingsoundattheend—
thefactthatitendedbadlydoesnotmeanitwasallbad.”
“Thisisabadcaseofdurationneglect.Youaregivingthegoodandthebadpartof
yourexperienceequalweight,althoughthegoodpartlastedtentimesaslongasthe
other.”
P
LifeasaStory
Earlyinthedaysofmyworkonthemeasurementofexperience,IsawVerdi’soperaLa
Traviata.Knownforitsgorgeousmusic,itisalsoamovingstoryofthelovebetweena
young aristocrat and Violetta, a woman of the demimonde. The young man’s father
approaches Violetta and convinces her to give up her lover, to protect the honor of the
familyandthemarriageprospects of theyoungman’ssister. In anactofsupreme self-
sacrifice, Violetta pretends to reject the man she adores. She soon relapses into
consumption(thenineteenth-centurytermfortuberculosis).Inthefinalact,Violettalies
dying,surroundedbyafewfriends.HerbelovedhasbeenalertedandisrushingtoParisto
see her. H Kto earing the news, she is transformed with hope and joy, but she is also
deterioratingquickly.
Nomatterhowmanytimesyouhaveseentheopera,youaregrippedbythetension
andfearof themoment:Willtheyoungloverarriveintime?Thereisasensethatitis
immenselyimportantforhimtojoinhisbelovedbeforeshedies.Hedoes,ofcourse,some
marvelousloveduetsaresung,andafter10minutesofgloriousmusicViolettadies.
Onmywayhomefromtheopera,Iwondered:Whydowecaresomuchaboutthose
last10minutes?IquicklyrealizedthatIdidnotcareatallaboutthelengthofVioletta’s
life.IfIhadbeentoldthatshediedatage27,notage28asIbelieved,thenewsthatshe
hadmissedayearofhappylifewouldnot have movedmeatall,butthepossibilityof
missingthelast10minutesmatteredagreatdeal.Furthermore,theemotionIfeltaboutthe
lovers’ reunion would not have changed if I had learned that they actually had a week
together, rather than 10 minutes. If the lover had come too late, however, La Traviata
would have been an altogether different story. A story is about significant events and
memorablemoments,notabouttimepassing.Durationneglectisnormalinastory,and
the ending often defines its character. The same core features appear in the rules of
narratives and in the memories of colonoscopies, vacations, and films. This is how the
rememberingselfworks:itcomposesstoriesandkeepsthemforfuturereference.
Itisnotonlyattheoperathatwethinkoflifeasastoryandwishittoendwell.When
wehearaboutthedeathofawomanwhohadbeenestrangedfromherdaughterformany
years, we want to know whether they were reconciled as death approached. We do not
care only about the daughters feelings—it is the narrative of the mothers life that we
wishtoimprove.Caringforpeopleoftentakestheformofconcernforthequalityoftheir
stories,notfortheirfeelings.Indeed,wecanbedeeplymovedevenbyeventsthatchange
thestoriesofpeoplewhoarealreadydead.Wefeelpityforamanwhodiedbelievingin
hiswife’sloveforhim,whenwehearthatshehadaloverformanyyearsandstayedwith
herhusbandonlyforhismoney.Wepitythehusbandalthoughhehadlivedahappylife.
Wefeelthehumiliationofascientistwhomadeanimportantdiscoverythatwasproved
falseaftershedied,althoughshedidnotexperiencethehumiliation.Mostimportant,of
course,weallcareintenselyforthenarrativeofourownlifeandverymuchwantittobea
goodstory,withadecenthero.
ThepsychologistEdDienerandhisstudentswonderedwhetherdurationneglectand
thepeak-endrulewouldgovernevaluationsofentirelives.Theyusedashortdescription
ofthelifeofafictitiouscharactercalledJen,a never-marriedwoman with no children,
whodiedinstantlyandpainlesslyinanautomobileaccident.InoneversionofJen’sstory,
shewasextremelyhappythroughoutherlife(whichlastedeither30or60years),enjoying
herwork,takingvacations,spendingtimewithherfriendsandonherhobbies.Another
versionadded5extrayearstoJen’slife,whonowdiedeitherwhenshewas35or65.The
extrayearsweredescribedaspleasantbutlesssothanbefore.Afterreadingaschematic
biographyofJen,eachparticipantansweredtwoquestions:“Takingherlifeasawhole,
how desirable do you think Jen’s life was?” and “How much total happiness or
unhappinesswouldyousaythatJenexperiencedinherlife?”
Theresultsprovidedclearevidenceofbothdurationneglectandapeak-endeffect.In
abetween-subjects experiment(differentparticipantssaw differentforms), doubling the
durationofJen’slifehadJtoAadJtonoeffectwhatsoeveronthedesirabilityofherlife,or
onjudgmentsofthetotalhappinessthatJenexperienced.Clearly,herlifewasrepresented
byaprototypicalsliceoftime,not as asequenceoftimeslices.As a consequence,her
“total happiness” was the happiness of a typical period in her lifetime, not the sum (or
integral)ofhappinessoverthedurationofherlife.
Asexpectedfromthisidea,Dienerandhisstudentsalsofoundaless-is-moreeffect,a
strong indication that an average (prototype) has been substituted for a sum. Adding 5
“slightlyhappy”yearstoaveryhappylifecausedasubstantialdropinevaluationsofthe
totalhappinessofthatlife.
Atmyurging,theyalsocollecteddataontheeffectoftheextra5yearsinawithin-
subject experiment; each participant made both judgments in immediate succession. In
spiteofmylongexperiencewithjudgmenterrors,Ididnotbelievethatreasonablepeople
couldsaythatadding5slightlyhappyyearstoalifewouldmakeitsubstantiallyworse.I
waswrong.Theintuitionthatthedisappointingextra5yearsmadethewholelifeworse
wasoverwhelming.
The pattern of judgments seemed so absurd that Diener and his students initially
thought that it represented the folly of the young people who participated in their
experiments.However,thepatterndidnotchangewhentheparentsandolderfriendsof
students answered the same questions. In intuitive evaluation of entire lives as well as
briefepisodes,peaksandendsmatterbutdurationdoesnot.
Thepainsoflaborandthebenefitsofvacationsalwayscomeupasobjectionstothe
ideaofdurationneglect:weallsharetheintuitionthatitismuchworseforlabortolast24
than6hours,andthat6daysatagoodresortisbetterthan3.Durationappearstomatterin
thesesituations,butthisisonlybecausethequalityoftheendchangeswiththelengthof
theepisode.Themotherismoredepletedandhelplessafter24hoursthanafter6,andthe
vacationerismorerefreshedandrestedafter6daysthanafter3.Whattrulymatterswhen
weintuitivelyassesssuchepisodesistheprogressivedeteriorationorimprovementofthe
ongoingexperience,andhowthepersonfeelsattheend.
AmnesicVacations
Considerthechoiceofavacation.Doyouprefertoenjoyarelaxingweekatthefamiliar
beachto whichyou went lastyear? Ordo youhope toenrich your storeof memories?
Distinctindustrieshavedevelopedtocatertothesealternatives:resortsofferrestorative
relaxation; tourism is about helping people construct stories and collect memories. The
frenetic picture taking of many tourists suggests that storing memories is often an
importantgoal,whichshapesboththeplansforthevacationandtheexperienceofit.The
photographerdoesnotviewthesceneasamomenttobesavoredbutasafuturememory
tobedesigned.Picturesmaybeusefultotherememberingself—thoughwerarelylookat
themforverylong,orasoftenasweexpected,orevenatall—butpicturetakingisnot
necessarilythebestwayforthetourist’sexperiencingselftoenjoyaview.
Inmanycasesweevaluatetouristicvacationsbythestoryandthememoriesthatwe
expect to store. The word memorable is often used to describe vacation highlights,
explicitlyrevealingthegoaloftheexperience.Inothersituations—lovecomestomind—
the declaration that the present moment will never be forgotten, though not always
accurate,changesthecharacterofthemoment.Aself-consciouslymemorableexperience
gainsaweightandasignificanceJtoAceJtothatitwouldnototherwisehave.
EdDienerandhisteamprovidedevidencethatitistherememberingselfthatchooses
vacations.Theyaskedstudentstomaintaindailydiariesandrecordadailyevaluationof
theirexperiencesduring springbreak.The studentsalsoprovided aglobalrating ofthe
vacationwhenithadended.Finally,theyindicatedwhetherornottheyintendedtorepeat
or not to repeat the vacation they had just had. Statistical analysis established that the
intentions for future vacations were entirely determined by the final evaluation—even
when that score did not accurately represent the quality of the experience that was
describedinthediaries.Asinthecold-handexperiment,rightorwrong,peoplechooseby
memorywhentheydecidewhetherornottorepeatanexperience.
A thought experiment about your next vacation will allow you to observe your
attitudetoyourexperiencingself.
Attheend ofthe vacation, allpicturesand videoswillbe destroyed.Furthermore,
youwillswallowapotionthatwillwipeoutallyourmemoriesofthevacation.
How would this prospect affect your vacation plans? How much would you be
willingtopayforit,relativetoanormallymemorablevacation?
While I have not formally studied the reactions to this scenario, my impression from
discussingitwithpeopleisthattheeliminationofmemoriesgreatlyreducesthevalueof
the experience. In some cases, people treat themselves as they would treat another
amnesic,choosingtomaximizeoverallpleasurebyreturningtoaplacewheretheyhave
beenhappyinthepast.However,somepeoplesaythattheywouldnotbothertogoatall,
revealing that they care only about their remembering self, and care less about their
amnesicexperiencingselfthanaboutanamnesicstranger.Manypointoutthattheywould
not send either themselves or another amnesic to climb mountains or trek through the
jungle—becausetheseexperiencesaremostlypainfulinrealtimeandgainvaluefromthe
expectationthatboththepainandthejoyofreachingthegoalwillbememorable.
Foranotherthoughtexperiment,imagineyoufaceapainfuloperationduringwhich
youwillremainconscious.Youaretoldyouwillscreaminpainandbegthesurgeonto
stop.However,youarepromisedanamnesia-inducingdrugthatwillcompletelywipeout
any memory of the episode. How do you feel about such a prospect? Here again, my
informalobservationisthatmostpeopleareremarkablyindifferenttothepainsoftheir
experiencingself.Somesaytheydon’tcareatall.Otherssharemyfeeling,whichisthatI
feelpityformysufferingselfbutnotmorethanIwouldfeelforastrangerinpain.Oddas
itmayseem,Iammyrememberingself,andtheexperiencingself,whodoesmyliving,is
likeastrangertome.
SpeakingofLifeasaStory
“He is desperately trying to protect the narrative of a life of integrity, which is
endangeredbythelatestepisode.”
“Thelengthtowhichhewaswillingtogoforaone-nightencounterisasignoftotal
durationneglect.”
“You seem to be devoting your entire vacation to the construction of memories.
Perhapsyoushouldputawaythecameraandenjoythemoment,evenifitisnotvery
memorable?”
“SheisanAlzheimerspatient.Shenolongermaintainsanarrativeofherlife,but
herexperiencingselfisstillsensitivetobeautyandgentleness.”
P
ExperiencedWell-Being
When I became interested in the study of well-being about fifteen years ago, I quickly
foundoutthatalmosteverythingthatwasknownaboutthesubjectdrewontheanswersof
millionsofpeopletominorvariationsofasurveyquestion,whichwasgenerallyaccepted
asameasureofhappiness. The questionisclearlyaddressedtoyour rememberingself,
whichisinvitedtothinkaboutyourlife:
Allthingsconsidered,howsatisfiedareyouwithyourlifeasawholethesedays?
Havingcometothetopicofwell-beingfromthestudyofthemistakenmemoriesof
colonoscopiesandpainfullycoldhands,Iwasnaturallysuspiciousofglobalsatisfaction
withlifeasavalidmeasureofwell-being.Astherememberingselfhadnotprovedtobea
goodwitnessinmyexperiments,Ifocusedonthewell-beingoftheexperiencingself.I
proposedthatitmadesensetosaythat“HelenwashappyinthemonthofMarch”if
shespentmostofhertimeengagedinactivitiesthatshewouldrathercontinuethan
stop,littletimeinsituationsshewishedtoescape,and—veryimportantbecauselife
isshort—nottoomuchtimeinaneutralstateinwhichshewouldnotcareeitherway.
Therearemanydifferentexperienceswewouldrathercontinuethanstop,including
bothmentalandphysicalpleasures.OneoftheexamplesIhadinmindforasituationthat
Helenwouldwishtocontinueistotalabsorptioninatask,whichMihalyCsikszentmihalyi
callsflow—astatethatsomeartistsexperienceintheircreativemomentsandthatmany
other people achieve when enthralled by a film, a book, or a crossword puzzle:
interruptionsarenotwelcomeinanyofthesesituations.Ialsohadmemoriesofahappy
earlychildhoodinwhichIalwayscriedwhenmymothercametotearmeawayfrommy
toystotakemetothepark,andcriedagainwhenshetookmeawayfromtheswingsand
theslide.TheresistancetointerruptionwasasignIhadbeenhavingagoodtime,both
withmytoysandwiththeswings.
I proposed to measure Helen’s objective happiness precisely as we assessed the
experienceofthetwocolonoscopypatients,byevaluatingaprofileofthewell-beingshe
experienced over successive moments of her life. In this I was following Edgeworth’s
hedonimetermethodofacenturyearlier.Inmyinitialenthusiasmforthisapproach,Iwas
inclinedtodismissHelen’srememberingselfasanerror-pronewitnesstotheactualwell-
beingofherexperiencingself.Isuspectedthispositionwastooextreme,whichitturned
outtobe,butitwasagoodstart.
n=“4”>ExperiencedWell-Being
Iassembled“adreamteam”thatincludedthreeotherpsychologistsofdifferentspecialties
andoneeconomist,andwesetouttogethertodevelopameasureofthewell-beingofthe
experiencing self. A continuous record of experience was unfortunately impossible—a
person cannot live normally while constantly reporting her experiences. The closest
alternative was experience sampling, a method that Csikszentmihalyi had invented.
Technologyhasadvancedsinceitsfirstuses.Experiencesamplingisnowimplementedby
programminganindividual’scellphonetobeeporvibrateatrandomintervalsduringthe
day. The phonethenpresents abriefmenuof questionsaboutwhatthe respondentwas
doing and who was with her when she was interrupted. The participant is also shown
ratingscalestoreporttheintensityofvariousfeelings:happiness,tension,anger,worry,
engagement,physicalpain,andothers.
Experience sampling is expensive and burdensome (although less disturbing than
most people initially expect; answering the questions takes very little time). A more
practical alternative was needed, so we developed a method that we called the Day
ReconstructionMethod(DRM).Wehopeditwouldapproximatetheresultsofexperience
sampling and provide additional information about the way people spend their time.
Participants(allwomen,intheearlystudies)wereinvitedtoatwo-hoursession.Wefirst
askedthemtorelivethepreviousdayindetail,breakingitupintoepisodeslikescenesina
film. Later, they answered menus of questions about each episode, based on the
experience-samplingmethod.Theyselectedactivitiesinwhichtheywereengagedfroma
list and indicated the one to which they paid most attention. They also listed the
individualstheyhadbeenwith,andratedtheintensityofseveralfeelingsonseparate0–6
scales (0 = the absence of the feeling; 6 = most intense feeling). Our method drew on
evidence that people who are able to retrieve a past situation in detail are also able to
relive the feelings that accompanied it, even experiencing their earlier physiological
indicationsofemotion.
We assumed that our participants would fairly accurately recover the feeling of a
prototypical moment of the episode. Several comparisons with experience sampling
confirmed the validity of the DRM. Because the participants also reported the times at
whichepisodesbeganandended,wewereabletocomputeaduration-weightedmeasure
of their feeling during the entire waking day. Longer episodes counted more than short
episodes in our summary measure of daily affect. Our questionnaire also included
measuresoflifesatisfaction,whichweinterpretedasthesatisfactionoftheremembering
self.WeusedtheDRMtostudythedeterminantsofbothemotionalwell-beingandlife
satisfactioninseveralthousandwomenintheUnitedStates,France,andDenmark.
The experience of a moment or an episode is not easily represented by a single
happiness value. There are many variants of positive feelings, including love, joy,
engagement,hope,amusement,andmanyothers.Negativeemotionsalsocomeinmany
varieties, including anger, shame, depression, and loneliness. Although positive and
negativeemotionsexistatthesametime,itispossibletoclassifymostmomentsoflifeas
ultimatelypositiveornegative.Wecouldidentifyunpleasantepisodesbycomparingthe
ratingsofpositiveandnegativeadjectives.Wecalledanepisodeunpleasantifanegative
feelingwasassignedahigherratingthanallthepositivefeelings.WefoundthatAmerican
womenspentabout19%ofthetimeinanunpleasantstate,somewhathigherthanFrench
women(16%)orDanishwomen(14%).
We called the percentage Jr”>n Qge Jr”>of time that an individual spends in an
unpleasantstatetheU-index.Forexample,anindividualwhospent4hoursofa16-hour
wakingdayinanunpleasantstatewouldhaveaU-indexof25%.TheappealoftheU-
indexisthatitisbasednotonaratingscalebutonanobjectivemeasurementoftime.If
theU-indexforapopulationdropsfrom20%to18%,youcaninferthatthetotaltimethat
thepopulationspentinemotionaldiscomfortorpainhasdiminishedbyatenth.
A striking observation was the extent of inequality in the distribution of emotional
pain. About half our participants reported going through an entire day without
experiencing an unpleasant episode. On the other hand, a significant minority of the
population experienced considerable emotional distress for much of the day. It appears
that a small fraction of the population does most of the suffering—whether because of
physical or mental illness, an unhappy temperament, or the misfortunes and personal
tragediesintheirlife.
A U-index can also be computed for activities. For example, we can measure the
proportion of time that people spend in a negative emotional state while commuting,
working, or interacting with their parents, spouses, or children. For 1,000 American
womenina Midwesterncity,theU-indexwas 29%forthemorningcommute,27%for
work,24%forchildcare,18%forhousework,12%forsocializing,12%forTVwatching,
and 5% for sex. The U-index was higher by about 6% on weekdays than it was on
weekends,mostlybecauseonweekendspeoplespendlesstimeinactivitiestheydislike
anddonotsufferthetensionandstressassociatedwithwork.Thebiggestsurprisewasthe
emotionalexperienceofthetimespentwithone’schildren,whichforAmericanwomen
wasslightlylessenjoyablethandoinghousework.Herewefoundoneofthefewcontrasts
betweenFrenchandAmericanwomen:Frenchwomenspendlesstimewiththeirchildren
butenjoyitmore,perhapsbecausetheyhavemoreaccesstochildcareandspendlessof
theafternoondrivingchildrentovariousactivities.
An individual’s mood at any moment depends on her temperament and overall
happiness, but emotional well-being also fluctuates considerably over the day and the
week.Themoodofthemomentdependsprimarilyonthecurrentsituation.Moodatwork,
for example, is largely unaffected by the factors that influence general job satisfaction,
includingbenefitsandstatus.Moreimportantaresituationalfactorssuchasanopportunity
tosocializewithcoworkers,exposuretoloudnoise,timepressure(asignificantsourceof
negativeaffect),andtheimmediatepresenceofaboss(inourfirststudy,theonlything
that was worse than being alone). Attention is key. Our emotional state is largely
determinedbywhatweattendto,andwearenormallyfocusedonourcurrentactivityand
immediateenvironment.Thereareexceptions,wherethequalityofsubjectiveexperience
isdominatedbyrecurrentthoughtsratherthanbytheeventsofthemoment.Whenhappily
in love, we may feel joy even when caught in traffic, and if grieving, we may remain
depressed when watching a funny movie. In normal circumstances, however, we draw
pleasureandpainfromwhatishappeningatthemoment,ifweattendtoit.Togetpleasure
fromeating,forexample,youmustnoticethatyouaredoingit.WefoundthatFrenchand
American women spent about the same amount of time eating, but for Frenchwomen,
eatingwastwiceaslikelytobefocalasitwasforAmericanwomen.TheAmericanswere
farmorepronetocombineeatingwithotheractivities,andtheirpleasurefromeatingwas
correspondinglydiluted.
These observations have implications for both individuals and society. The use of
timeisoneoftheareasoflifeoverwhichpeoplehavesomecontrol.Fewindividualscan
willthemselvestohaJr”>nQhaJr”>veasunnierdisposition,butsomemaybeableto
arrangetheirlivestospendlessoftheirdaycommuting,andmoretimedoingthingsthey
enjoywithpeopletheylike.Thefeelingsassociatedwithdifferentactivitiessuggestthat
another way to improve experience is to switch time from passive leisure, such as TV
watching, to more active forms of leisure, including socializing and exercise. From the
socialperspective,improved transportation forthelabor force,availabilityof child care
for working women, and improved socializing opportunities for the elderly may be
relativelyefficientwaystoreducetheU-indexofsociety—evenareductionby1%would
be a significant achievement, amounting to millions of hours of avoided suffering.
Combinednationalsurveysoftimeuseandofexperiencedwell-beingcaninformsocial
policyinmultipleways.Theeconomistonourteam,AlanKrueger,tooktheleadinan
efforttointroduceelementsofthismethodintonationalstatistics.
Measuresofexperiencedwell-beingarenowroutinelyusedinlarge-scalenationalsurveys
intheUnitedStates,Canada,andEurope,andtheGallupWorldPollhasextendedthese
measurements to millions of respondents in the United States and in more than 150
countries. The polls elicit reports of the emotions experienced during the previous day,
thoughinlessdetailthantheDRM.Thegiganticsamplesallowextremelyfineanalyses,
which have confirmed the importance of situational factors, physical health, and social
contact in experienced well-being. Not surprisingly, a headache will make a person
miserable,andthesecondbestpredictorofthefeelingsofadayiswhetherapersondidor
didnothavecontactswithfriendsorrelatives.Itisonlyaslightexaggerationtosaythat
happinessistheexperienceofspendingtimewithpeopleyouloveandwholoveyou.
TheGallupdatapermitacomparisonoftwoaspectsofwell-being:
thewell-beingthatpeopleexperienceastheylivetheirlives
thejudgmenttheymakewhentheyevaluatetheirlife
Gallup’slifeevaluationismeasuredbyaquestionknownastheCantrilSelf-Anchoring
StrivingScale:
Pleaseimaginealadderwithstepsnumberedfromzeroatthebottomto10atthetop.
Thetopoftheladderrepresentsthebestpossiblelifeforyouandthebottomofthe
ladderrepresentstheworstpossiblelifeforyou.Onwhichstepoftheladderwould
yousayyoupersonallyfeelyoustandatthistime?
Some aspects of life have more effect on the evaluation of one’s life than on the
experienceofliving.Educationalattainmentisanexample.Moreeducationisassociated
withhigherevaluationofone’slife,butnotwithgreaterexperiencedwell-being.Indeed,
atleastintheUnitedStates,themoreeducatedtendtoreporthigherstress.Ontheother
hand,illhealthhasamuchstrongeradverseeffectonexperiencedwell-beingthanonlife
evaluation.Livingwithchildrenalsoimposesasignificantcostinthecurrencyofdaily
feelings—reportsofstressandangerarecommonamongparents,buttheadverseeffects
onlifeevaluationaresmaller.Religiousparticipationalsohasrelativelygreaterfavorable
impactonbothpositiveaffectandstressreductionthanonlifeevaluation.Surprisingly,
however,religionprovidesnoreductionoffeelingsofdepressionorworry.
Ananalysisofmorethan450,000responsestotheGallup-HealthwaysWell-BeiJr”>n
QBeiJr”>ng Index, a daily surveyof 1,000Americans, providesa surprisingly definite
answer to the most frequently asked question in well-being research: Can money buy
happiness? The conclusion is that being poor makes one miserable, and that being rich
mayenhanceone’slifesatisfaction,butdoesnot(onaverage)improveexperiencedwell-
being.
Severe poverty amplifies the experienced effects of other misfortunes of life. In
particular, illness is much worse for the very poor than for those who are more
comfortable.Aheadacheincreasestheproportionreportingsadnessandworryfrom19%
to38%forindividualsinthetoptwo-thirdsoftheincomedistribution.Thecorresponding
numbers for the poorest tenth are 38% and 70%—a higher baseline level and a much
largerincrease.Significantdifferencesbetweentheverypoorandothersarealsofoundfor
theeffectsofdivorceandloneliness.Furthermore,thebeneficialeffectsoftheweekendon
experiencedwell-beingaresignificantlysmallerfortheverypoorthanformosteveryone
else.
Thesatiationlevelbeyondwhichexperiencedwell-beingnolongerincreaseswasa
householdincomeofabout$75,000inhigh-costareas(itcouldbelessinareaswherethe
costoflivingislower).Theaverageincreaseofexperiencedwell-beingassociatedwith
incomesbeyondthatlevelwaspreciselyzero.Thisissurprisingbecausehigherincome
undoubtedly permits the purchase of many pleasures, including vacations in interesting
placesandoperatickets,aswellasanimprovedlivingenvironment.Whydotheseadded
pleasuresnotshowupinreportsofemotionalexperience?Aplausibleinterpretationisthat
higher income is associated with a reduced ability to enjoy the small pleasures of life.
Thereissuggestiveevidenceinfavorofthisidea:primingstudentswiththeideaofwealth
reducesthepleasuretheirfaceexpressesastheyeatabarofchocolate!
Thereisaclearcontrastbetweentheeffectsofincomeonexperiencedwell-beingand
onlifesatisfaction.Higherincomebringswithithighersatisfaction,wellbeyondthepoint
atwhichitceasestohaveanypositiveeffectonexperience.Thegeneralconclusionisas
clear for well-being as it was for colonoscopies: people’s evaluations of their lives and
theiractualexperiencemayberelated,buttheyarealsodifferent.Lifesatisfactionisnota
flawed measure of their experienced well-being, as I thought some years ago. It is
somethingelseentirely.
SpeakingofExperiencedWell-Being
“Theobjectiveofpolicyshouldbetoreducehumansuffering.WeaimforalowerU-
indexinsociety.Dealingwithdepressionandextremepovertyshouldbeapriority.”
“Theeasiestwaytoincreasehappinessistocontrolyouruseoftime.Canyoufind
moretimetodothethingsyouenjoydoing?”
“Beyond the satiation level of income, you can buy more pleasurable experiences,
butyouwilllosesomeofyourabilitytoenjoythelessexpensiveones.”
P
ThinkingAboutLife
Figure16istakenfromananalysisbyAndrewClark,EdDiener,andYannisGeorgellisof
theGermanSocio-EconomicPanel,inwhichthesamerespondentswereaskedeveryyear
abouttheirsatisfactionwiththeirlife.Respondentsalsoreportedmajorchangesthathad
occurredintheircircumstancesduringtheprecedingyear.Thegraphshowsthelevelof
satisfactionreportedbypeoplearoundthetimetheygotmarried.
Figure16
Thegraphreliablyevokesnervouslaughterfromaudiences, and the nervousnessis
easytounderstand:afterall,peoplewhodecidetogetmarrieddosoeitherbecausethey
expectitwillmakethemhappierorbecausetheyhopethatmakingatiepermanentwill
maintain the present state of bliss. In the useful term introduced by Daniel Gilbert and
TimothyWilson,thedecisiontogetmarriedreflects,formanypeople,amassiveerrorof
affectiveforecasting.Ontheirweddingday,thebrideandthegroomknowthattherateof
divorceishighandthattheincidenceofmaritaldisappointmentisevenhigher,buttheydo
notbelievethatthesestatisticsapplytothem.
Thestartlingnewsoffigure16isthesteepdeclineoflifesatisfaction.Thegraphis
commonly interpreted as tracing a process of adaptation, in which the early joys of
marriage quickly disappear as the experiences become routine. However, another
approachispossible,whichfocusesonheuristicsofjudgment.Hereweaskwhathappens
inpeople’smindswhentheyareaskedtoevaluatetheirlife.Thequestions“Howsatisfied
are you with your life as a whole?” and “How happy are you these days?” are not as
simple as “What is your telephone number?” How do survey participants manage to
answersuchquestionsinafewseconds,asalldo?Itwillhelptothinkofthisasanother
judgment.Asis also thecasefor otherquestions,somepeople may haveaready-made
answer,whichtheyhadproducedonanotheroccasioninwhichtheyevaluatedtheirlife.
Others,probablythemajority,donotquicklyfindaresponsetotheexactquestionthey
wereasked,andautomaticallymaketheirtaskeasierbysubstitutingtheanswertoanother
question. System 1 is at work. When we look at figure 16 in this light, it takes on a
differentmeaning.
Theanswerstomanysimplequestionscanbesubstitutedforaglobalevaluationof
life.Yourememberthestudyinwhichstudentswhohadjustbeenaskedhowmanydates
theyhadinthepreviousmonthreportedtheir“happinessthesedays”asifdatingwasthe
only significant fact in their life. In another well-known experiment in the same vein,
NorbertSchwarzandhiscolleaguesinvitedsubjectstothelabtocompleteaquestionnaire
onlifesatisfaction.Beforetheybeganthattask,however,heaskedthemtophotocopya
sheet of paper for him. Half the respondents found a dime on the copying machine,
planted there by the experimenter. The minor lucky incident caused a marked
improvementinsubjects’reportedsatisfactionwiththeirlifeasawhole!Amoodheuristic
isonewaytoanswerlife-satisfactionquestions.
The dating survey and the coin-on-the-machine experiment demonstrated, as
intended,thattheresponsestoglobalwell-beingquestionsshouldbetakenwithagrainof
salt.Butofcourseyourcurrentmoodisnottheonlythingthatcomestomindwhenyou
areaskedtoevaluateyourlife.Youarelikelytoberemindedofsignificanteventsinyour
recentpastornearfuture;ofrecurrentconcerns,suchasthehealthJghtA5althJghtofa
spouse or the bad company that your teenager keeps; of important achievements and
painful failures. A few ideas that are relevant to the question will occur to you; many
otherswillnot.Evenwhenitisnotinfluencedbycompletelyirrelevantaccidentssuchas
thecoinonthemachine,thescorethatyouquicklyassigntoyourlifeisdeterminedbya
smallsampleofhighlyavailableideas,notbyacarefulweightingofthedomainsofyour
life.
Peoplewhorecentlymarried,orareexpectingtomarryinthenearfuture,arelikelyto
retrieve that fact when asked a general question about their life. Because marriage is
almostalwaysvoluntaryintheUnitedStates,almosteveryonewhoisremindedofhisor
herrecentorforthcomingmarriagewillbehappywiththeidea.Attentionisthekeytothe
puzzle.Figure16canbereadasagraphofthelikelihoodthatpeoplewillthinkoftheir
recentorforthcomingmarriagewhenaskedabouttheirlife.Thesalienceofthisthoughtis
boundtodiminishwiththepassageoftime,asitsnoveltywanes.
Thefigureshows an unusuallyhighlevel of lifesatisfactionthatlasts twoorthree
years around the event of marriage. However, if this apparent surge reflects the time
courseofaheuristicforansweringthequestion,thereislittlewecanlearnfromitabout
eitherhappinessorabouttheprocessofadaptationtomarriage.Wecannotinferfromit
thatatideofraisedhappinesslastsforseveralyearsandgraduallyrecedes.Evenpeople
whoarehappytoberemindedoftheirmarriagewhenaskedaquestionabouttheirlifeare
notnecessarilyhappiertherestofthetime.Unlesstheythinkhappythoughtsabouttheir
marriage during much of their day, it will not directly influence their happiness. Even
newlywedswhoareluckyenoughtoenjoyastateofhappypreoccupationwiththeirlove
willeventuallyreturntoearth,andtheirexperiencedwell-beingwillagaindepend,asit
doesfortherestofus,ontheenvironmentandactivitiesofthepresentmoment.
In the DRM studies, there was no overall difference in experienced well-being
betweenwomenwholivedwithamateandwomenwhodidnot.Thedetailsofhowthe
twogroupsusedtheirtimeexplainedthefinding.Womenwhohaveamatespendlesstime
alone,butalsomuchlesstimewithfriends.Theyspendmoretimemakinglove,whichis
wonderful,butalsomoretimedoinghousework,preparingfood,andcaringforchildren,
allrelativelyunpopularactivities.Andofcourse,thelargeamountoftimemarriedwomen
spend with their husband is much more pleasant for some than for others. Experienced
well-being is on average unaffected by marriage, not because marriage makes no
difference to happiness but because it changes some aspects of life for the better and
othersfortheworse.
One reason for the low correlations between individuals’ circumstances and their
satisfaction with life is that both experienced happiness and life satisfaction are largely
determinedbythegeneticsoftemperament.Adispositionforwell-beingisasheritableas
heightorintelligence,asdemonstratedbystudiesoftwinsseparatedatbirth.Peoplewho
appearequallyfortunatevarygreatlyinhowhappytheyare.Insomeinstances,asinthe
caseof marriage,the correlations withwell-being are lowbecause ofbalancing effects.
The same situation may be good for some people and bad for others, and new
circumstances have both benefits and costs. In other cases, such as high income, the
effectsonlifesatisfactionaregenerallypositive,butthepictureiscomplicatedbythefact
thatsomepeoplecaremuchmoreaboutmoneythanothersdo.
A large-scale study of the impact of higher education, which was conducted for
JghtA5aorJghtanotherpurpose,revealedstrikingevidenceofthelifelongeffectsofthe
goals that young people set for themselves. The relevant data were drawn from
questionnairescollectedin1995–1997fromapproximately12,000peoplewhohadstarted
theirhighereducationineliteschoolsin1976.Whentheywere17or18,theparticipants
had filled out a questionnaire in which they rated the goal of “being very well-off
financially” on a 4-point scale ranging from “not important” to “essential.” The
questionnaire they completed twenty years later included measures of their income in
1995,aswellasaglobalmeasureoflifesatisfaction.
Goals make a large difference. Nineteen years after they stated their financial
aspirations,manyofthepeoplewhowantedahighincomehadachievedit.Amongthe
597 physicians and other medical professionals in the sample, for example, each
additionalpointonthemoney-importancescalewasassociatedwithanincrementofover
$14,000ofjobincomein1995dollars!Nonworkingmarriedwomenwerealsolikelyto
havesatisfiedtheirfinancialambitions.Eachpointonthescaletranslatedintomorethan
$12,000ofaddedhouseholdincomeforthesewomen,evidentlythroughtheearningsof
theirspouse.
The importance that people attached to income at age 18 also anticipated their
satisfactionwiththeirincomeasadults.Wecomparedlifesatisfactioninahigh-income
group(morethan$200,000householdincome)toalow-tomoderate-incomegroup(less
than$50,000).Theeffectofincomeonlifesatisfactionwaslargerforthosewhohadlisted
being well-off financially as an essential goal: .57 point on a 5-point scale. The
correspondingdifferenceforthosewhohadindicatedthatmoneywasnotimportantwas
only.12.Thepeoplewhowantedmoneyandgotitweresignificantlymoresatisfiedthan
average;thosewhowantedmoneyanddidn’tgetitweresignificantlymoredissatisfied.
The same principle applies to other goals—one recipe for a dissatisfied adulthood is
settinggoalsthatareespeciallydifficulttoattain.Measuredbylifesatisfaction20years
later, the least promising goal that a young person could have was “becoming
accomplished in a performing art.” Teenagers’ goals influence what happens to them,
wheretheyendup,andhowsatisfiedtheyare.
In part because of these findings I have changed my mind about the definition of
well-being.Thegoalsthatpeoplesetforthemselvesaresoimportanttowhattheydoand
howtheyfeelaboutitthatanexclusivefocusonexperiencedwell-beingisnottenable.We
cannotholdaconceptofwell-beingthatignoreswhatpeoplewant.Ontheotherhand,itis
alsotruethataconceptofwell-beingthatignoreshowpeoplefeelastheyliveandfocuses
onlyonhowtheyfeelwhentheythinkabouttheirlifeisalsountenable.Wemustaccept
thecomplexitiesofahybridview,inwhichthewell-beingofbothselvesisconsidered.
TheFocusingIllusion
Wecaninferfromthespeedwithwhichpeoplerespondtoquestionsabouttheirlife,and
fromtheeffectsofcurrentmoodontheirresponses,thattheydonotengageinacareful
examination when they evaluate their life. They must be using heuristics, which are
examples of both substitution and WYSIATI. Although their view of their life was
influenced by a question about dating or by a coin on the copying machine, the
participantsinthesestudiesdidnotforgetthatthereismoretolifethandatingorfeeling
lucky.Theconceptofhappinessisnotsuddenlychangedbyfindingadime,butSystem1
readily substitutes a small part of it for the whole of it. Any aspect of life to which
attentionisdirectedwillloomJghtA5aoomJghtlargeinaglobalevaluation.Thisisthe
essenceofthefocusingillusion,whichcanbedescribedinasinglesentence:
Nothinginlifeisasimportantasyouthinkitiswhenyouarethinkingaboutit.
TheoriginofthisideawasafamilydebateaboutmovingfromCaliforniatoPrinceton,in
which my wife claimed that people are happier in California than on the East Coast. I
argued that climate is demonstrably not an important determinant of well-being—the
Scandinaviancountriesareprobablythehappiestintheworld.Iobservedthatpermanent
lifecircumstanceshavelittleeffectonwell-beingandtriedinvaintoconvincemywife
that her intuitions about the happiness of Californians were an error of affective
forecasting.
A short time later, with this debate still on my mind, I participated in a workshop
aboutthesocialscienceofglobalwarming.Acolleaguemadeanargumentthatwasbased
on his view of the well-being of the population of planet Earth in the next century. I
arguedthatitwaspreposteroustoforecastwhatitwouldbeliketoliveonawarmerplanet
whenwedidnotevenknowwhatitisliketoliveinCalifornia.Soonafterthatexchange,
mycolleagueDavidSchkadeandIweregrantedresearchfundstostudytwoquestions:
ArepeoplewholiveinCaliforniahappierthanothers?andWhatarethepopularbeliefs
abouttherelativehappinessofCalifornians?
WerecruitedlargesamplesofstudentsatmajorstateuniversitiesinCalifornia,Ohio,
andMichigan.Fromsomeofthemweobtainedadetailedreportoftheirsatisfactionwith
variousaspectsoftheirlives.Fromothersweobtainedapredictionofhowsomeone“with
yourinterestsandvalues”wholivedelsewherewouldcompletethesamequestionnaire.
Asweanalyzedthedata,itbecameobviousthatIhadwonthefamilyargument.As
expected,thestudentsinthetworegionsdifferedgreatlyintheirattitudetotheirclimate:
theCaliforniansenjoyedtheirclimateandtheMidwesternersdespisedtheirs.Butclimate
was not an important determinant of well-being. Indeed, there was no difference
whatsoeverbetweenthelifesatisfactionofstudentsinCaliforniaandintheMidwest.We
alsofoundthatmywifewasnotaloneinherbeliefthatCaliforniansenjoygreaterwell-
beingthanothers.Thestudentsinbothregionsshared the samemistakenview,andwe
wereableto tracetheirerror toan exaggerated beliefin the importanceof climate. We
describedtheerrorasafocusingillusion.
The essence of the focusing illusion is WYSIATI, giving too much weight to the
climate,toolittletoalltheotherdeterminantsofwell-being.Toappreciatehowstrongthis
illusionis,takeafewsecondstoconsiderthequestion:
Howmuchpleasuredoyougetfromyourcar?
Ananswercametoyourmindimmediately;youknowhowmuchyoulikeandenjoyyour
car.Nowexamineadifferentquestion:Whendoyougetpleasurefromyourcar?”The
answertothisquestionmaysurpriseyou,butitisstraightforward:you getpleasure(or
displeasure) from your car when you think about your car, which is probably not very
often.Undernormalcircumstances,youdonotspendmuchtimethinkingaboutyourcar
when you are driving it. You think of other things as you drive, and your mood is
determinedbywhateveryouthinkabout.Hereagain,whenyoutriedtoratehowmuch
youenjoyedyourcar,youactuallyansweredJghtA5aedJghtamuchnarrowerquestion:
“Howmuchpleasuredoyougetfromyourcarwhenyouthinkaboutit?”Thesubstitution
caused you to ignore the fact that you rarely think about your car, a form of duration
neglect.Theupshotisafocusingillusion.Ifyoulikeyourcar,youarelikelytoexaggerate
thepleasureyouderivefromit,whichwillmisleadyouwhenyouthinkofthevirtuesof
yourcurrentvehicleaswellaswhenyoucontemplatebuyinganewone.
AsimilarbiasdistortsjudgmentsofthehappinessofCalifornians.Whenaskedabout
thehappinessofCalifornians,youprobablyconjureanimageofsomeoneattendingtoa
distinctiveaspectoftheCaliforniaexperience,suchashikinginthesummeroradmiring
themildwinterweather.ThefocusingillusionarisesbecauseCaliforniansactuallyspend
little time attending to these aspects of their life. Moreover, long-term Californians are
unlikelytoberemindedoftheclimatewhenaskedforaglobalevaluationoftheirlife.If
youhavebeenthereallyourlifeanddonottravelmuch,livinginCaliforniaislikehaving
tentoes:nice,butnotsomethingonethinksmuchabout.Thoughtsofanyaspectoflifeare
morelikelytobesalientifacontrastingalternativeishighlyavailable.
People who recently moved to California will respond differently. Consider an
enterprisingsoulwhomovedfromOhiotoseekhappinessinabetterclimate.Forafew
yearsfollowingthemove,aquestionabouthissatisfactionwithlifewillprobablyremind
himofthemoveandalsoevokethoughtsofthecontrastingclimatesinthetwostates.The
comparisonwillsurelyfavorCalifornia,andtheattentiontothataspectoflifemaydistort
its true weight in experience. However, the focusing illusion can also bring comfort.
Whetheror notthe individual isactually happierafterthe move,he willreport himself
happier,becausethoughtsoftheclimatewillmakehimbelievethatheis.Thefocusing
illusioncancausepeopletobewrongabouttheirpresentstateofwell-beingaswellas
aboutthehappinessofothers,andabouttheirownhappinessinthefuture.
Whatproportionofthedaydoparaplegicsspendinabadmood?
Thisquestionalmostcertainlymadeyouthinkofaparaplegicwhoiscurrentlythinking
about some aspect of his condition. Your guess about a paraplegic’s mood is therefore
likelytobeaccurateintheearlydaysafteracripplingaccident;forsometimeafterthe
event,accidentvictimsthinkoflittleelse.Butovertime,withfewexceptions,attentionis
withdrawn from a new situation as it becomes more familiar. The main exceptions are
chronicpain,constantexposuretoloudnoise,andseveredepression.Painandnoiseare
biologically set to be signals that attract attention, and depression involves a self-
reinforcing cycle of miserable thoughts. There is therefore no adaptation to these
conditions.Paraplegia,however,isnotoneoftheexceptions:detailedobservationsshow
thatparaplegicsareinafairlygoodmoodmorethanhalfofthetimeasearlyasonemonth
followingtheiraccident—though their moodiscertainly somberwhenthey thinkabout
theirsituation.Mostofthetime,however,paraplegicswork,read,enjoyjokesandfriends,
andgetangrywhentheyreadaboutpoliticsinthenewspaper.Whentheyareinvolvedin
anyoftheseactivities,theyarenotmuchdifferentfromanyoneelse,andwecanexpect
theexperiencedwell-beingofparaplegicstobenearnormalmuchofthetime.Adaptation
toanewsituation,whethergood or bad,consistsinlargepartof thinking lessandless
about it. In that sense, most long-term circumstances of life, including paraplegia and
marriage,arepart-timestatesthatoneinhabitsonlywhenoneatJghtA5aatJghttendsto
them.
One of the privileges of teaching at Princeton is the opportunity to guide bright
undergraduatesthrougharesearchthesis.Andoneofmyfavoriteexperiencesinthisvein
wasaprojectinwhichBeruriaCohncollectedandanalyzeddatafromasurveyfirmthat
askedrespondentstoestimatetheproportionoftimethatparaplegicsspendinabadmood.
Shesplitherrespondentsintotwogroups:someweretoldthatthecripplingaccidenthad
occurred a month earlier, some a year earlier. In addition, each respondent indicated
whetherheorsheknewaparaplegicpersonally.Thetwogroupsagreedcloselyintheir
judgmentabouttherecentparaplegics:thosewhoknewaparaplegicestimated75%bad
mood; those who had to imagine a paraplegic said 70%. In contrast, the two groups
differedsharplyintheirestimatesofthemoodofparaplegicsayearaftertheaccidents:
thosewhoknewaparaplegicoffered41%astheirestimateofthetimeinthatbadmood.
The estimates of those who were not personally acquainted with a paraplegic averaged
68%. Evidently, those who knew a paraplegic had observed the gradual withdrawal of
attentionfromthecondition,butothersdidnotforecastthatthisadaptationwouldoccur.
Judgments about the mood of lottery winners one month and one year after the event
showedexactlythesamepattern.
Wecanexpectthelifesatisfactionofparaplegicsandthoseafflictedbyotherchronic
andburdensomeconditionstobelowrelativetotheirexperiencedwell-being,becausethe
requesttoevaluatetheirliveswillinevitablyremindthemofthelifeofothersandofthe
lifetheyusedtolead.Consistentwiththisidea,recentstudiesofcolostomypatientshave
produceddramaticinconsistenciesbetweenthepatients’experiencedwell-beingandtheir
evaluations of their lives. Experience sampling shows no difference in experienced
happinessbetweenthesepatientsandahealthypopulation.Yetcolostomypatientswould
be willing to trade away years of their life for a shorter life without the colostomy.
Furthermore, patients whose colostomy has been reversed remember their time in this
conditionasawful,andtheywouldgiveupevenmoreoftheirremaininglifenottohave
toreturntoit.Hereitappearsthattherememberingselfissubjecttoamassivefocusing
illusionaboutthelifethattheexperiencingselfenduresquitecomfortably.
DanielGilbertandTimothyWilsonintroducedthewordmiswantingtodescribebad
choices that arise from errors of affective forecasting. This word deserves to be in
everyday language. The focusing illusion (which Gilbert and Wilson call focalism) is a
rich source of miswanting. In particular, it makes us prone to exaggerate the effect of
significantpurchasesorchangedcircumstancesonourfuturewell-being.
Compare two commitments that will change some aspects of your life: buying a
comfortablenewcarandjoiningagroupthatmeetsweekly,perhapsapokerorbookclub.
Bothexperienceswillbenovelandexcitingatthestart.Thecrucialdifferenceisthatyou
willeventuallypaylittleattentiontothecarasyoudriveit,butyouwillalwaysattendto
thesocialinteractiontowhichyoucommittedyourself.ByWYSIATI,youarelikelyto
exaggerate the long-term benefits of the car, but you are not likely to make the same
mistake for a social gathering or for inherently attention-demanding activities such as
playingtennisorlearningtoplaythecello.Thefocusingillusioncreatesabiasinfavorof
goods and experiences that are initially exciting, even if they will eventually lose their
appeal.Timeisneglected,causingexperiencesthatwillretaintheirattentionvalueinthe
longtermtobeappreciatedlessthantheydeservetobe.
TimeandTimeAgain
Theroleoftimehasbeenarefraininthispartofthebook.Itislogicaltodescribethelife
oftheexperiencingselfasaseriesofmoments,eachwithavalue.Thevalueofanepisode
—Ihavecalleditahedonimetertotal—issimplythesumofthevaluesofitsmoments.
But this is not how the mind represents episodes. The remembering self, as I have
describedit,alsotellsstoriesandmakeschoices,andneitherthestoriesnorthechoices
properlyrepresenttime.Instorytellingmode,anepisodeisrepresentedbyafewcritical
moments,especiallythebeginning,thepeak,andtheend.Durationisneglected.Wesaw
thisfocusonsingularmomentsbothinthecold-handsituationandinVioletta’sstory.
We saw a different form of duration neglect in prospect theory, in which a state is
representedbythetransitiontoit.Winningalotteryyieldsanewstateofwealththatwill
endureforsometime,butdecisionutilitycorrespondstotheanticipatedintensityofthe
reactiontothenewsthatonehaswon.Thewithdrawalofattentionandotheradaptations
tothenewstateareneglected,asonlythatthinsliceoftimeisconsidered.Thesamefocus
onthetransitiontothenewstateandthesameneglectoftimeandadaptationarefoundin
forecastsofthereactiontochronicdiseases,andofcourseinthefocusingillusion.The
mistakethatpeoplemakeinthefocusingillusioninvolvesattentiontoselectedmoments
andneglectofwhathappensatothertimes.Themindisgoodwithstories,butitdoesnot
appeartobewelldesignedfortheprocessingoftime.
Duringthelasttenyearswehavelearnedmanynewfactsabouthappiness.Butwe
havealsolearnedthatthewordhappinessdoesnothaveasimplemeaningandshouldnot
beusedasifitdoes.Sometimesscientificprogressleavesusmorepuzzledthanwewere
before.
SpeakingofThinkingAboutLife
“Shethoughtthatbuyingafancycarwouldmakeherhappier,butitturnedouttobe
anerrorofaffectiveforecasting.”
“Hiscarbrokedownonthewaytoworkthismorningandhe’sinafoulmood.This
isnotagooddaytoaskhimabouthisjobsatisfaction!”
“Shelooksquitecheerfulmostofthetime,butwhensheisaskedshesayssheisvery
unhappy.Thequestionmustmakeherthinkofherrecentdivorce.”
“Buying a larger house may not make us happier in the long term. We could be
sufferingfromafocusingillusion.”
“He has chosen to split his time between two cities. Probably a serious case of
miswanting.”
P
Conclusions
Ibeganthisbookbyintroducingtwofictitiouscharacters,spentsometimediscussingtwo
species,andendedwithtwoselves.ThetwocharactersweretheintuitiveSystem1,which
doesJghtA5`؇J5thefastthinking,andtheeffortfulandslowerSystem2,whichdoesthe
slowthinking,monitorsSystem1,andmaintainscontrolasbestitcanwithinitslimited
resources.ThetwospecieswerethefictitiousEcons,wholiveinthelandoftheory,and
theHumans,whoactintherealworld.Thetwoselvesaretheexperiencingself,which
doestheliving,andtherememberingself,whichkeepsscoreandmakesthechoices.In
this final chapter I consider some applications of the three distinctions, taking them in
reverseorder.
TwoSelves
The possibility of conflicts between the remembering self and the interests of the
experiencingselfturned outtobe aharder problem thanI initially thought.In an early
experiment, the cold-hand study, the combination of duration neglect and the peak-end
rule led to choices that were manifestly absurd. Why would people willingly expose
themselvesto unnecessary pain?Our subjectsleft thechoice to theirremembering self,
preferringtorepeatthetrialthatleftthebettermemory,althoughitinvolvedmorepain.
Choosingby thequalityof thememory maybe justifiedinextreme cases,for example
whenpost-traumaticstressisapossibility,butthecold-handexperiencewasnottraumatic.
Anobjectiveobservermakingthechoiceforsomeoneelsewouldundoubtedlychoosethe
shortexposure,favoringthesufferersexperiencingself.Thechoicesthatpeoplemadeon
theirownbehalfarefairlydescribedasmistakes.Durationneglectandthepeak-endrule
intheevaluationofstories,bothattheoperaandinjudgmentsofJen’slife,areequally
indefensible.Itdoesnotmakesensetoevaluateanentirelifebyitslastmoments,orto
givenoweighttodurationindecidingwhichlifeismoredesirable.
TherememberingselfisaconstructionofSystem2.However,thedistinctivefeatures
of the way it evaluates episodes and lives are characteristics of our memory. Duration
neglectandthepeak-endruleoriginateinSystem1anddonotnecessarilycorrespondto
thevaluesofSystem2.Webelievethatdurationisimportant,butourmemorytellsusitis
not.Therulesthatgoverntheevaluationofthepastarepoorguidesfordecisionmaking,
because time does matter. The central fact of our existence is that time is the ultimate
finite resource, but the remembering self ignores that reality. The neglect of duration
combinedwiththepeak-endrule causes abiasthatfavors a shortperiodofintense joy
overalongperiodofmoderatehappiness.Themirrorimageofthesamebiasmakesus
fear a short period of intense but tolerable suffering more than we fear a much longer
periodofmoderatepain.Durationneglectalsomakesuspronetoacceptalongperiodof
mildunpleasantnessbecausetheendwillbebetter,anditfavorsgivingupanopportunity
foralonghappyperiodifitislikelytohaveapoorending.Todrivethesameideatothe
pointofdiscomfort,consider thecommonadmonition,“Don’tdoit,youwillregretit.”
Theadvicesoundswisebecauseanticipatedregretistheverdictoftherememberingself
and we are inclined to accept such judgments as final and conclusive. We should not
forget, however, that the perspective of the remembering self is not always correct. An
objectiveobserverofthehedonimeterprofile,withtheinterestsoftheexperiencingselfin
mind,mightwellofferdifferent advice.Therememberingselfs neglect ofduration,its
exaggerated emphasis on peaks and ends, and its susceptibility to hindsight combine to
yielddistortedreflectionsofouractualexperience.
Incontrast,theduration-weightedconceptionofwell-beingtreatsallmomentsoflife
alike,memorableornot.Somemomentsendupweightedmorethanothers,eitherbecause
theyarememorableSareevaorbecause they areimportant.Thetimethatpeoplespend
dwellingonamemorablemomentshouldbeincludedinitsduration,addingtoitsweight.
Amomentcanalsogainimportancebyalteringtheexperienceofsubsequentmoments.
For example, an hour spent practicing the violin may enhance the experience of many
hoursofplayingorlisteningtomusicyearslater.Similarly,abriefawfuleventthatcauses
PTSDshouldbeweightedbythetotaldurationofthelong-termmiseryitcauses.Inthe
duration-weighted perspective, we can determine only after the fact that a moment is
memorable or meaningful. The statements “I will always remember…” or “this is a
meaningfulmoment”shouldbetakenaspromisesorpredictions,whichcanbefalse—and
oftenare—evenwhenutteredwithcompletesincerity.Itisagoodbetthatmanyofthe
thingswesaywewillalwaysrememberwillbelongforgottentenyearslater.
Thelogicofdurationweightingiscompelling,butitcannotbeconsideredacomplete
theory of well-being because individuals identify with their remembering self and care
about their story. A theory of well-being that ignores what people want cannot be
sustained.Ontheotherhand,atheorythatignoreswhatactuallyhappensinpeople’slives
and focuses exclusively on what they think about their life is not tenable either. The
remembering self and the experiencing self must both be considered, because their
interestsdo not alwayscoincide. Philosopherscould strugglewiththese questionsfor a
longtime.
The issue of which of the two selves matters more is not a question only for
philosophers; it has implications for policies in several domains, notably medicine and
welfare.Considertheinvestmentthatshouldbemadeinthetreatmentofvariousmedical
conditions, including blindness, deafness, or kidney failure. Should the investments be
determinedbyhowmuchpeoplefeartheseconditions?Shouldinvestmentsbeguidedby
thesufferingthatpatientsactuallyexperience?Orshouldtheyfollowtheintensityofthe
patients’desiretoberelievedfromtheirconditionandbythesacrificesthattheywouldbe
willing to make to achieve that relief? The ranking of blindness and deafness, or of
colostomy and dialysis, might well be different depending on which measure of the
severityofsufferingisused.Noeasysolutionisinsight,buttheissueistooimportantto
beignored.
The possibility of using measures of well-being as indicators to guide government
policieshasattractedconsiderablerecentinterest,bothamongacademicsandin several
governmentsinEurope.Itisnowconceivable,asitwasnotevenafewyearsago,thatan
indexoftheamountofsufferinginsocietywillsomedaybeincludedinnationalstatistics,
alongwithmeasuresofunemployment,physicaldisability,andincome.Thisprojecthas
comealongway.
EconsandHumans
Ineverydayspeech,wecallpeoplereasonableifitispossibletoreasonwiththem,iftheir
beliefs are generally in tune with reality, and if their preferences are in line with their
interests and their values. The word rational conveys an image of greater deliberation,
morecalculation,andlesswarmth,butincommonlanguagearationalpersoniscertainly
reasonable.Foreconomistsanddecisiontheorists,theadjectivehasanaltogetherdifferent
meaning.Theonlytestofrationalityisnotwhetheraperson’sbeliefsandpreferencesare
reasonable, but whether they are internally consistent. A rational person can believe in
ghostssolongasallherotherbeliefsareconsistentwiththeexistenceofghosts.Arational
personcanpreferbeinghatedoverbeingloved,solongashiSsoasallspreferencesare
consistent.Rationalityislogicalcoherence—reasonableornot.Econsarerationalbythis
definition,butthereis overwhelming evidencethatHumanscannot be. AnEconwould
notbesusceptibletopriming,WYSIATI,narrowframing,theinsideview,orpreference
reversals,whichHumanscannotconsistentlyavoid.
The definition of rationality as coherence is impossibly restrictive; it demands
adherencetorulesoflogicthatafinitemindisnotabletoimplement.Reasonablepeople
cannotberationalbythatdefinition,buttheyshouldnotbebrandedasirrationalforthat
reason. Irrational is a strong word, which connotes impulsivity, emotionality, and a
stubbornresistancetoreasonableargument.IoftencringewhenmyworkwithAmosis
creditedwithdemonstratingthathumanchoicesareirrational,wheninfactourresearch
onlyshowedthatHumansarenotwelldescribedbytherational-agentmodel.
Although Humans are not irrational, they often need help to make more accurate
judgments and better decisions, and in some cases policies and institutions can provide
thathelp.Theseclaimsmayseeminnocuous,buttheyareinfactquitecontroversial.As
interpretedby the importantChicago schoolof economics,faithin humanrationality is
closely linked to an ideology in which it is unnecessary and even immoral to protect
people against their choices. Rational people should be free, and they should be
responsible for taking care of themselves. Milton Friedman, the leading figure in that
school,expressedthisviewinthetitleofoneofhispopularbooks:FreetoChoose.
The assumption that agents are rational provides the intellectual foundation for the
libertarianapproachtopublicpolicy:donotinterferewiththeindividual’srighttochoose,
unlessthechoicesharmothers.Libertarianpoliciesarefurtherbolsteredbyadmirationfor
theefficiencyofmarketsinallocatinggoodstothepeoplewhoarewillingtopaythemost
for them. A famous example of the Chicago approach is titled A Theory of Rational
Addiction; it explains how a rational agent with a strong preference for intense and
immediate gratification may make the rational decision to accept future addiction as a
consequence.IonceheardGaryBecker,oneoftheauthorsofthatarticle,whoisalsoa
NobellaureateoftheChicagoschool,argueinalightervein,butnotentirelyasajoke,
that we should consider the possibility of explaining the so-called obesity epidemic by
people’s belief that a cure for diabetes will soon become available. He was making a
valuable point: when we observe people acting in ways that seem odd, we should first
examinethe possibilitythattheyhaveagoodreasontodowhatthey do.Psychological
interpretations should only be invoked when the reasons become implausible—which
Beckersexplanationofobesityprobablyis.
InanationofEcons,governmentshouldkeepoutoftheway,allowingtheEconsto
actastheychoose,solongastheydonotharmothers.Ifamotorcycleriderchoosesto
ridewithoutahelmet,alibertarianwillsupporthisrighttodoso.Citizensknowwhatthey
are doing, even when they choose not to save for their old age, or when they expose
themselves to addictive substances. There is sometimes a hard edge to this position:
elderly people who did not save enough for retirement get little more sympathy than
someonewhocomplainsaboutthebillafterconsumingalargemealatarestaurant.Much
is therefore at stake in the debate between the Chicago school and the behavioral
economists, who reject the extreme form of the rational-agent model. Freedom is not a
contested value; all the participants in the debate are in favor of it. But life is more
complexforbehavioraleconomiststhanfortruSth17;ebelieversinhumanrationality.No
behavioraleconomistfavorsastatethatwillforceitscitizenstoeatabalanceddietandto
watch only television programs that are good for the soul. For behavioral economists,
however,freedomhasacost,whichisbornebyindividualswhomakebadchoices,andby
a society that feels obligated to help them. The decision of whether or not to protect
individualsagainsttheirmistakesthereforepresentsadilemmaforbehavioraleconomists.
TheeconomistsoftheChicagoschooldonotfacethatproblem,becauserationalagentsdo
notmakemistakes.Foradherentsofthisschool,freedomisfreeofcharge.
In2008theeconomistRichardThalerandthejuristCassSunsteinteameduptowrite
a book, Nudge, which quickly became an international bestseller and the bible of
behavioral economics. Their book introduced several new words into the language,
includingEconsandHumans.Italsopresentedasetofsolutionstothedilemmaofhowto
help people make good decisions without curtailing their freedom.Thaler and Sunstein
advocateapositionoflibertarianpaternalism,inwhichthestateandotherinstitutionsare
allowedtonudgepeopletomakedecisionsthatservetheirownlong-terminterests.The
designationofjoiningapensionplanasthedefaultoptionisanexampleofanudge.Itis
difficulttoarguethatanyone’sfreedomisdiminishedbybeingautomaticallyenrolledin
theplan,whentheymerelyhavetocheckaboxtooptout.Aswesawearlier,theframing
oftheindividual’sdecision—ThalerandSunsteincallitchoicearchitecture—hasahuge
effectontheoutcome.Thenudgeisbasedonsoundpsychology,whichIdescribedearlier.
Thedefaultoptionisnaturallyperceivedasthenormalchoice.Deviatingfromthenormal
choiceisanactofcommission,whichrequiresmoreeffortfuldeliberation,takesonmore
responsibility,andismorelikelytoevokeregretthandoingnothing.Thesearepowerful
forcesthatmayguidethedecisionofsomeonewhoisotherwiseunsureofwhattodo.
Humans,morethanEcons,alsoneedprotectionfromotherswhodeliberatelyexploit
their weaknesses—and especially the quirks of System 1 and the laziness of System 2.
Rational agents are assumed to make important decisions carefully, and to use all the
informationthatisprovidedtothem.AnEconwillreadandunderstandthefineprintofa
contractbeforesigningit,butHumansusuallydonot.Anunscrupulousfirmthatdesigns
contractsthatcustomerswillroutinelysignwithoutreadinghasconsiderablelegalleeway
in hiding important information in plain sight. A pernicious implication of the rational-
agent model in its extreme form is that customers are assumed to need no protection
beyondensuringthattherelevantinformationisdisclosed.Thesizeoftheprintandthe
complexityofthelanguageinthedisclosurearenotconsideredrelevant—anEconknows
howtodealwithsmallprintwhenitmatters.Incontrast,therecommendationsofNudge
requirefirmstooffercontractsthataresufficientlysimpletobereadandunderstoodby
Humancustomers.Itisagoodsignthatsomeoftheserecommendationshaveencountered
significantoppositionfromfirmswhoseprofitsmightsufferiftheircustomerswerebetter
informed.Aworldinwhichfirmscompetebyofferingbetterproductsispreferabletoone
inwhichthewinneristhefirmthatisbestatobfuscation.
Aremarkablefeatureoflibertarianpaternalismisitsappealacrossabroadpolitical
spectrum.Theflagship exampleofbehavioral policy,called Save MoreTomorrow,was
sponsoredinCongressbyanunusualcoalitionthatincludedextremeconservativesaswell
asliberals.SaveMoreTomorrowisafinancialplanthatfirmscanoffertheiremployees.
ThosewhosignonallowtheemployertoincreaSyersliberalsetheircontributiontotheir
savingplanbyafixedproportionwhenevertheyreceivearaise.Theincreasedsavingrate
isimplementedautomaticallyuntiltheemployeegivesnoticethatshewantstooptoutof
it.Thisbrilliantinnovation,proposedbyRichardThalerandShlomoBenartziin2003,has
nowimprovedthesavingsrateandbrightenedthefutureprospectsofmillionsofworkers.
Itissoundlybasedinthepsychologicalprinciplesthatreadersofthisbookwillrecognize.
Itavoidstheresistancetoanimmediatelossbyrequiringnoimmediatechange;bytying
increasedsavingtopayraises,itturnslossesintoforegonegains,whicharemucheasierto
bear;andthefeatureofautomaticityalignsthelazinessofSystem2withthelong-term
interestsoftheworkers.Allthis,ofcourse,withoutcompellinganyonetodoanythinghe
doesnotwishtodoandwithoutanymisdirectionorartifice.
The appeal of libertarian paternalism has been recognized in many countries,
includingtheUKandSouthKorea,andbypoliticiansofmanystripes,includingTories
andtheDemocraticadministrationofPresidentObama.Indeed,Britain’sgovernmenthas
createdanewsmallunitwhosemissionistoapplytheprinciplesofbehavioralscienceto
helpthegovernmentbetteraccomplishitsgoals.Theofficialnameforthisgroupisthe
BehaviouralInsightTeam,butitisknownbothinandoutofgovernmentsimplyasthe
NudgeUnit.Thalerisanadvisertothisteam.
In a storybook sequel to the writing of Nudge, Sunstein was invited by President
Obamatoserveasadministratorof the OfficeofInformationandRegulatoryAffairs,a
position that gave him considerable opportunity to encourage the application of the
lessonsofpsychologyandbehavioraleconomicsingovernmentagencies.Themissionis
describedinthe2010ReportoftheOfficeofManagementandBudget.Readersofthis
book will appreciate the logic behind specific recommendations, including encouraging
“clear,simple,salient,andmeaningfuldisclosures.”Theywillalsorecognizebackground
statementssuchas“presentationgreatlymatters;if, for example,a potentialoutcome is
framedasaloss,itmayhavemoreimpactthanifitispresentedasagain.”
The example of a regulation about the framing of disclosures concerning fuel
consumptionwasmentionedearlier.Additionalapplicationsthathavebeenimplemented
includeautomaticenrollmentinhealthinsurance,anewversionofthedietaryguidelines
thatreplacestheincomprehensibleFoodPyramidwiththepowerfulimageofaFoodPlate
loadedwithabalanceddiet,andaruleformulatedbytheUSDAthatpermitstheinclusion
of messages such as “90% fat-free” on the label of meat products, provided that the
statement“10%fat”isalsodisplayed“contiguousto,inletteringofthesamecolor,size,
and type as, and on the same color background as, the statement of lean percentage.”
Humans, unlike Econs, need help to make good decisions, and there are informed and
unintrusivewaystoprovidethathelp.
TwoSystems
Thisbookhasdescribedtheworkingsofthemindasanuneasyinteractionbetweentwo
fictitiouscharacters:theautomaticSystem1andtheeffortfulSystem2.Youarenowquite
familiarwiththepersonalitiesofthetwosystemsandabletoanticipatehowtheymight
respondindifferentsituations.Andofcourseyoualsorememberthatthetwosystemsdo
not really exist in the brain or anywhere else. “System 1 does X” is a shortcut for “X
occurs automatically.” And “System 2 is mobilized to do Y” is a shortcut for “arousal
increases, pupils dilate, attention is fo Stenations,cused, and activity Y is performed.” I
hopeyoufindthelanguageofsystemsashelpfulasIdo,andthatyouhaveacquiredan
intuitivesenseofhowtheyworkwithoutgettingconfusedbythequestionofwhetherthey
exist.Havingdeliveredthisnecessarywarning,Iwillcontinuetousethelanguagetothe
end.
TheattentiveSystem2iswhowethinkweare.System2articulatesjudgmentsand
makeschoices,butitoftenendorsesorrationalizesideasandfeelingsthatweregenerated
bySystem1.Youmaynotknowthatyouareoptimisticaboutaprojectbecausesomething
aboutitsleaderremindsyouofyourbelovedsister,orthatyoudislikeapersonwholooks
vaguely like your dentist. If asked for an explanation, however, you will search your
memoryforpresentablereasonsandwillcertainlyfindsome.Moreover,youwillbelieve
the story you make up. But System 2 is not merely an apologist for System 1; it also
prevents many foolish thoughts and inappropriate impulses from overt expression. The
investmentofattentionimprovesperformanceinnumerousactivities—thinkoftherisks
ofdrivingthroughanarrowspacewhileyourmindiswandering—andisessentialtosome
tasks,includingcomparison,choice,andorderedreasoning.However,System2isnota
paragon of rationality. Its abilities are limited and so is the knowledge to which it has
access.Wedonotalwaysthinkstraightwhenwereason,andtheerrorsarenotalwaysdue
tointrusiveandincorrectintuitions.Oftenwemakemistakesbecausewe(ourSystem2)
donotknowanybetter.
IhavespentmoretimedescribingSystem1,andhavedevotedmanypagestoerrors
of intuitive judgment and choice that I attribute to it. However, the relative number of
pages is a poor indicator of the balance between the marvels and the flaws of intuitive
thinking.System1isindeedtheoriginofmuchthatwedowrong,butitisalsotheorigin
ofmostofwhatwedoright—whichismostofwhatwedo.Ourthoughtsandactionsare
routinelyguidedbySystem1andgenerallyareonthemark.Oneofthemarvelsistherich
anddetailedmodelofourworldthatismaintainedinassociativememory:itdistinguishes
surprisingfromnormaleventsinafractionofasecond,immediatelygeneratesanideaof
what was expected instead of a surprise, and automatically searches for some causal
interpretationofsurprisesandofeventsastheytakeplace.
Memory also holds the vast repertory of skills we have acquired in a lifetime of
practice,whichautomaticallyproduceadequatesolutionstochallengesastheyarise,from
walkingaroundalargestoneonthepathtoavertingtheincipientoutburstofacustomer.
The acquisition of skills requires a regular environment, an adequate opportunity to
practice, and rapid and unequivocal feedback about the correctness of thoughts and
actions. When these conditions are fulfilled, skill eventually develops, and the intuitive
judgmentsandchoicesthatquicklycometomindwillmostlybeaccurate.Allthisisthe
work of System 1, which means it occurs automatically and fast. A marker of skilled
performanceistheabilitytodealwithvastamountsofinformationswiftlyandefficiently.
When a challenge is encountered to which a skilled response is available, that
responseisevoked.Whathappensintheabsenceofskill?Sometimes,asintheproblem
17×24=?,whichcallsforaspecificanswer,itisimmediatelyapparentthatSystem2
must be called in. But it is rare for System 1 to be dumbfounded. System 1 is not
constrained by capacity limits and is profligate in its computations. When engaged in
searchingforananswertoonequestion,itsimultaneouslygeneratestheanswerstorelated
questions,anditmaysubstitutearesponsethatmoreeasilycomestomindfortheonethat
was requested. In this conception of heu Septtedristics, the heuristic answer is not
necessarilysimplerormorefrugalthantheoriginalquestion—itisonlymoreaccessible,
computed more quickly and easily. The heuristic answers are not random, and they are
oftenapproximatelycorrect.Andsometimestheyarequitewrong.
System1registersthecognitiveeasewithwhichitprocessesinformation,butitdoes
notgenerateawarningsignalwhenitbecomesunreliable.Intuitiveanswerscometomind
quicklyandconfidently,whethertheyoriginatefromskillsorfromheuristics.Thereisno
simplewayforSystem2todistinguishbetweenaskilledandaheuristicresponse.Itsonly
recourse is to slow down and attempt to construct an answer on its own, which it is
reluctanttodobecauseitisindolent.ManysuggestionsofSystem1arecasuallyendorsed
withminimalchecking,asinthebat-and-ballproblem.ThisishowSystem1acquiresits
bad reputation as the source of errors and biases. Its operative features, which include
WYSIATI, intensity matching, and associative coherence, among others, give rise to
predictablebiasesandtocognitiveillusionssuchasanchoring,nonregressivepredictions,
overconfidence,andnumerousothers.
Whatcanbedoneaboutbiases?Howcanweimprovejudgmentsanddecisions,both
ourownandthoseoftheinstitutionsthatweserveandthatserveus?Theshortansweris
thatlittle canbe achieved without a considerableinvestment ofeffort.As Iknow from
experience, System 1 is not readily educable. Except for some effects that I attribute
mostly to age, my intuitive thinking is just as prone to overconfidence, extreme
predictions,andtheplanningfallacyasitwasbeforeImadeastudyoftheseissues.Ihave
improved only in my ability to recognize situations in which errors are likely: “This
numberwillbeananchor…,”“Thedecisioncouldchangeiftheproblemisreframed…”
AndIhavemademuchmoreprogressinrecognizingtheerrorsofothersthanmyown.
ThewaytoblockerrorsthatoriginateinSystem1issimpleinprinciple:recognize
thesignsthatyouareinacognitiveminefield,slowdown,andaskforreinforcementfrom
System2.ThisishowyouwillproceedwhenyounextencountertheMüller-Lyerillusion.
When you see lines with fins pointing in different directions, you will recognize the
situationasoneinwhichyoushouldnottrustyourimpressionsoflength.Unfortunately,
thissensibleprocedureisleastlikelytobeappliedwhenitisneededmost.Wewouldall
like to have a warning bell that rings loudly whenever we are about to make a serious
error,butnosuchbellisavailable,andcognitiveillusionsaregenerallymoredifficultto
recognizethanperceptualillusions.Thevoiceofreasonmaybemuchfainterthantheloud
and clear voice of an erroneous intuition, and questioning your intuitions is unpleasant
whenyoufacethestressofabigdecision.Moredoubtisthelastthingyouwantwhenyou
are in trouble. The upshot is that it is much easier to identify a minefield when you
observe others wandering into it than when you are about to do so. Observers are less
cognitively busy and more open to information than actors. That was my reason for
writingabookthatisorientedtocriticsandgossipersratherthantodecisionmakers.
Organizationsarebetterthanindividualswhenitcomestoavoidingerrors,because
they naturally think more slowly and have the power to impose orderly procedures.
Organizations can institute and enforce the application of useful checklists, as well as
moreelaborateexercises,suchasreference-classforecastingandthepremortem.Atleast
inpartbyprovidingadistinctivevocabulary,organizationscanalsoencourageaculturein
which people watch out for one another as they approach minefields. Whatever else it
produces, a St pof othersn organization is a factory that manufactures judgments and
decisions.Everyfactorymusthavewaystoensurethequalityofitsproductsintheinitial
design,infabrication,andinfinalinspections.Thecorrespondingstagesintheproduction
ofdecisionsaretheframingoftheproblemthatistobesolved,thecollectionofrelevant
informationleadingtoadecision,andreflectionandreview.Anorganizationthatseeksto
improveitsdecisionproductshouldroutinelylookforefficiencyimprovementsateachof
thesestages.Theoperativeconceptisroutine.Constantqualitycontrolisanalternativeto
thewholesalereviewsofprocessesthatorganizationscommonlyundertakeinthewakeof
disasters. There is much to be done to improve decision making. One example out of
manyistheremarkableabsenceofsystematictrainingfortheessentialskillofconducting
efficientmeetings.
Ultimately,aricherlanguageisessentialtotheskillofconstructivecriticism.Much
likemedicine,theidentificationofjudgmenterrorsisadiagnostictask,whichrequiresa
precisevocabulary.Thenameofadiseaseisahooktowhichallthatisknownaboutthe
diseaseisattached,includingvulnerabilities,environmentalfactors,symptoms,prognosis,
andcare.Similarly,labels such as“anchoringeffects,”“narrowframing,”or“excessive
coherence” bring together in memory everything we know about a bias, its causes, its
effects,andwhatcanbedoneaboutit.
Thereisadirectlinkfrommoreprecisegossipatthewatercoolertobetterdecisions.
Decisionmakersaresometimesbetterabletoimaginethevoicesofpresentgossipersand
futurecriticsthantohearthehesitantvoiceoftheirowndoubts.Theywillmakebetter
choices when they trust their critics to be sophisticated and fair, and when they expect
theirdecisiontobejudgedbyhowitwasmade,notonlybyhowitturnedout.
P
AppendixA:JudgmentUnderUncertainty:Heuristicsand
Biases*
AmosTverskyandDanielKahneman
Manydecisionsarebasedonbeliefsconcerningthelikelihoodofuncertaineventssuchas
theoutcomeofanelection,theguiltofadefendant,orthefuturevalueofthedollar.These
beliefsareusuallyexpressedinstatementssuchas“Ithinkthat…,”“chancesare…,”“itis
unlikely that…,” and so forth. Occasionally, beliefs concerning uncertain events are
expressed in numerical form as odds or subjective probabilities. What determines such
beliefs? How do people assess the probability of an uncertain event or the value of an
uncertainquantity?Thisarticleshows that peoplerelyonalimitednumberofheuristic
principleswhichreducethecomplextasksofassessingprobabilitiesandpredictingvalues
to simpler judgmental operations. In general, these heuristics are quite useful, but
sometimestheyleadtosevereandsystematicerrors.
The subjective assessment of probability resembles the subjective assessment of
physical quantities such as distance or size. These judgments are all based on data of
limited validity, which are processed according to heuristic rules. For example, the
apparentdistanceofanobjectisdeterminedin partbyitsclarity.Themoresharplythe
objectisseen,thecloseritappearstobe.Thisrulehassomevalidity,becauseinanygiven
scene the more distant objects are seen less sharply than Vt pofreak/>stimated when
visibilityisgoodbecausetheobjectsareseensharply.Thus,therelianceonclarityasan
indicationofdistanceleadstocommonbiases.Suchbiasesarealsofoundintheintuitive
judgmentofprobability.Thisarticledescribesthreeheuristicsthatareemployedtoassess
probabilitiesandtopredictvalues.Biasestowhichtheseheuristicsleadareenumerated,
andtheappliedandtheoreticalimplicationsoftheseobservationsarediscussed.
Representativeness
Manyoftheprobabilisticquestionswithwhichpeopleareconcernedbelongtooneofthe
following types: What is the probability that object A belongs to class B? What is the
probabilitythateventAoriginatesfromprocessB?WhatistheprobabilitythatprocessB
will generate event A? In answering such questions, people typically rely on the
representativenessheuristic,inwhichprobabilitiesareevaluatedbythedegreetowhichA
isrepresentativeofB,thatis,bythedegreetowhichAresemblesB.Forexample,whenA
ishighlyrepresentativeofB,theprobabilitythatAoriginatesfromBisjudgedtobehigh.
On the other hand, if A is not similar to B, the probability that A originates from B is
judgedtobelow.
Foranillustrationofjudgmentbyrepresentativeness,consideranindividualwhohas
been described by a former neighbor as follows: “Steve is very shy and withdrawn,
invariablyhelpful,butwithlittleinterestinpeople,orintheworldofreality.Ameekand
tidysoul,hehasaneedfororderandstructure,andapassionfordetail.”Howdopeople
assess the probability that Steve is engaged in a particular occupation from a list of
possibilities(forexample,farmer,salesman,airlinepilot,librarian,orphysician)?Howdo
people order these occupations from most to least likely? In the representativeness
heuristic,theprobabilitythatSteveisalibrarian,forexample,isassessedbythedegreeto
whichheisrepresentativeof,orsimilarto,thestereotypeofalibrarian.Indeed,research
withproblemsofthistypehasshownthatpeopleordertheoccupationsbyprobabilityand
bysimilarityinexactlythesameway.1Thisapproachtothejudgmentofprobabilityleads
to serious errors, because similarity, or representativeness, is not influenced by several
factorsthatshouldaffectjudgmentsofprobability.
Insensitivitytopriorprobabilityofoutcomes.Oneofthefactorsthathavenoeffecton
representativenessbutshouldhaveamajoreffectonprobabilityisthepriorprobability,or
baseratefrequency,oftheoutcomes.InthecaseofSteve,forexample,thefactthatthere
aremanymorefarmersthanlibrariansinthepopulationshouldenterintoanyreasonable
estimateoftheprobabilitythatSteveisalibrarianratherthanafarmer.Considerationsof
base-ratefrequency,however, donot affectthe similarityof Steveto thestereotypes of
librarians and farmers. If people evaluate probability by representativeness, therefore,
priorprobabilitieswillbeneglected.Thishypothesiswastestedinanexperimentwhere
priorprobabilitiesweremanipulated.2Subjectswereshownbriefpersonalitydescriptions
ofseveralindividuals,allegedlysampledatrandomfromagroupof100professionals—
engineers and lawyers. The subjects were asked to assess, for each description, the
probability that it belonged to an engineer rather than to a lawy [hanerser. In one
experimentalcondition,subjectsweretoldthatthegroupfromwhichthedescriptionshad
beendrawnconsistedof70engineersand30lawyers.Inanothercondition,subjectswere
toldthatthegroupconsistedof30engineersand70lawyers.Theoddsthatanyparticular
description belongs to an engineer rather than to a lawyer should be higher in the first
condition,wherethereisamajorityofengineers,thaninthesecondcondition,wherethere
is a majority of lawyers. Specifically, it can be shown by applying Bayes’ rule that the
ratiooftheseoddsshouldbe(.7/.3)2,or5.44,foreachdescription.Inasharpviolationof
Bayes’rule,thesubjectsinthetwoconditionsproducedessentiallythesameprobability
judgments. Apparently, subjects evaluated the likelihood that a particular description
belongedtoanengineerratherthantoalawyerbythedegreetowhichthisdescription
wasrepresentativeofthetwostereotypes,withlittleornoregardforthepriorprobabilities
ofthecategories.
Thesubjectsusedpriorprobabilitiescorrectlywhentheyhadnootherinformation.In
the absence of a personality sketch, they judged the probability that an unknown
individual is an engineer to be .7 and .3, respectively, in the two base-rate conditions.
However,priorprobabilitieswereeffectivelyignoredwhenadescriptionwasintroduced,
even when this description was totally uninformative. The responses to the following
descriptionillustratethisphenomenon:
Dickisa30-year-oldman.Heismarriedwithnochildren.Amanofhighabilityand
highmotivation,hepromisestobequitesuccessfulinhisfield.Heiswelllikedby
hiscolleagues.
This description was intended to convey no information relevant to the question of
whether Dick is an engineer or a lawyer. Consequently, the probability that Dick is an
engineershouldequaltheproportionofengineersinthegroup,asifnodescriptionhad
beengiven.Thesubjects,however,judgedtheprobabilityofDickbeinganengineertobe
.5 regardless of whether the stated proportion of engineers in the group was .7 or .3.
Evidently,peopleresponddifferentlywhengivennoevidenceandwhengivenworthless
evidence. When no specific evidence is given, prior probabilities are properly utilized;
whenworthlessevidenceisgiven,priorprobabilitiesareignored.3
Insensitivitytosamplesize.Toevaluatetheprobabilityofobtainingaparticularresult
in a sample drawn from a specified population, people typically apply the
representativeness heuristic. That is, they assess the likelihood of a sample result, for
example, that the average height in a random sample often men will be 6 feet, by the
similarityofthisresulttothecorrespondingparameter(thatis,totheaverageheightinthe
populationofmen).Thesimilarityofasamplestatistictoapopulationparameterdoesnot
depend on the size of the sample. Consequently, if probabilities are assessed by
representativeness, then the judged probability of a sample statistic will be essentially
independentofsamplesize.Indeed,whensubjectsassessed the distributionsof average
heightforsamplesofvarioussizes,theyproducedidenticaldistributions.Forexample,the
probabilityofobtaininganaverageheightgreaterthan6feetwasassignedthesamevalue
forsamplesof1,000,100,and10men.4Moreover,subjectsfailedtoappreciatetheroleof
samplesizeevenwhenitwasemphasizedintheformulationoftheproblem.Considerthe
followingquestion:
Acertaintowniss[ainquotewiervedbytwohospitals.Inthelargerhospitalabout45
babiesareborneachday,andinthesmallerhospitalabout15babiesareborneach
day.Asyouknow,about50%ofallbabiesareboys.However,theexactpercentage
variesfromdaytoday.
Sometimesitmaybehigherthan50%,sometimeslower.
Foraperiodof1year,eachhospitalrecordedthedaysonwhichmorethan60%
ofthebabiesbornwereboys.Whichhospitaldoyouthinkrecordedmoresuchdays?
Thelargerhospital(21)
Thesmallerhospital(21)
Aboutthesame(thatis,within5%ofeachother)(53)
The values in parentheses are the number of undergraduate students who chose each
answer.
Mostsubjectsjudgedtheprobabilityofobtainingmorethan60%boystobethesame
inthesmallandinthelargehospital,presumablybecausetheseeventsaredescribedby
the same statistic and are therefore equally representative of the general population. In
contrast,samplingtheory entailsthatthe expected numberof days onwhich morethan
60%of thebabies areboys ismuch greaterin thesmall hospitalthan inthe largeone,
because a large sample is less likely to stray from 50%. This fundamental notion of
statisticsisevidentlynotpartofpeople’srepertoireofintuitions.
A similar insensitivity to sample size has been reported in judgments of posterior
probability,thatis,oftheprobabilitythatasamplehasbeendrawnfromonepopulation
ratherthanfromanother.Considerthefollowingexample:
Imagineanurnfilledwithballs,ofwhich2/3areofonecolorand1/3ofanother.One
individualhasdrawn5ballsfromtheurn,andfoundthat4wereredand1waswhite.
Anotherindividualhasdrawn20ballsandfoundthat12wereredand8werewhite.
Whichofthetwoindividualsshouldfeelmoreconfidentthattheurncontains2/3red
ballsand1/3whiteballs,ratherthantheopposite?Whatoddsshouldeachindividual
give?
Inthisproblem,thecorrectposterioroddsare8to1forthe4:1sampleand16to1forthe
12:8sample,assumingequalpriorprobabilities.However,mostpeoplefeelthatthefirst
sampleprovidesmuchstrongerevidenceforthehypothesisthattheurnispredominantly
red,because the proportion of redballs islargerin thefirst thanin the second sample.
Here again, intuitive judgments are dominated by the sample proportion and are
essentially unaffected by the size of the sample, which plays a crucial role in the
determination of the actual posterior odds.5 In addition, intuitive estimates of posterior
oddsare farless extreme thanthe correctvalues. The underestimationof theimpact of
evidence has been observed repeatedly in problems of this type.6 It has been labeled
“conservatism.”
Misconceptions of chance. People expect that a sequence of events generated by a
randomprocesswillrepresenttheessentialcharacteristicsofthatprocessevenwhenthe
sequenceisshort.Inconsideringtossesofacoinforheadsortails,forexample,people
regardthesequenceH-T-H-T-T-HtobemorelikelythanthesequenceH-H-H-T-[enc.IT-
T,whichdoesnotappearrandom,andalsomorelikelythanthesequenceH-H-H-H-T-H,
whichdoesnotrepresentthefairnessofthecoin.7Thus,peopleexpectthattheessential
characteristicsoftheprocesswillberepresented,notonlygloballyintheentiresequence,
butalsolocallyineachofitsparts.Alocallyrepresentativesequence,however,deviates
systematically from chance expectation: it contains too many alternations and too few
runs. Another consequence of the belief in local representativeness is the well-known
gamblersfallacy.Afterobservingalongrunofredontheroulettewheel,forexample,
most people erroneously believe that black is now due, presumably because the
occurrenceofblackwillresultinamorerepresentativesequencethantheoccurrenceofan
additional red. Chance is commonly viewed as a self-correcting process in which a
deviation in one direction induces a deviation in the opposite direction to restore the
equilibrium.Infact,deviationsarenot“corrected”asachanceprocessunfolds,theyare
merelydiluted.
Misconceptionsofchancearenotlimitedtonaivesubjects.Astudyofthestatistical
intuitionsofexperiencedresearchpsychologists8revealedalingeringbeliefinwhatmay
becalledthe“lawofsmallnumbers,”accordingtowhichevensmallsamplesarehighly
representative of the populations from which they are drawn. The responses of these
investigatorsreflectedtheexpectationthatavalidhypothesisaboutapopulationwillbe
representedbyastatisticallysignificantresultinasamplewithlittleregardforitssize.As
a consequence, the researchers put too much faith in the results of small samples and
grosslyoverestimatedthereplicabilityofsuchresults.Intheactualconductofresearch,
thisbiasleadstotheselectionofsamplesofinadequatesizeandtooverinterpretationof
findings.
Insensitivity to predictability. People are sometimes called upon to make such
numericalpredictionsasthefuturevalueofastock,thedemandforacommodity,orthe
outcomeofafootballgame.Suchpredictionsareoftenmadebyrepresentativeness.For
example,supposeoneisgivenadescriptionofacompanyandisaskedtopredictitsfuture
profit.Ifthedescriptionofthecompanyisveryfavorable,averyhighprofitwillappear
most representative of that description; if the description is mediocre, a mediocre
performance will appear most representative. The degree to which the description is
favorableisunaffectedbythereliabilityofthatdescriptionorbythedegreetowhichit
permitsaccurateprediction.Hence,ifpeoplepredictsolelyintermsofthefavorableness
ofthedescription,theirpredictionswillbeinsensitivetothereliabilityoftheevidenceand
totheexpectedaccuracyoftheprediction.
This mode of judgment violates the normative statistical theory in which the
extremenessandtherangeofpredictionsarecontrolledbyconsiderationsofpredictability.
Whenpredictabilityisnil,thesamepredictionshouldbemadeinallcases.Forexample,if
the descriptions of companies provide no information relevant to profit, then the same
value(suchasaverageprofit) should bepredictedforallcompanies.If predictability is
perfect, of course, the values predicted will match the actual values and the range of
predictionswillequaltherangeofoutcomes.Ingeneral,thehigherthepredictability,the
widertherangeofpredictedvalues.
Severalstudiesof numerical predictionhavedemonstrated that intuitivepredictions
violate this rule, and that subjects show little or no regard for considerations of
predictability.9 In one o [pand tf these studies, subjects were presented with several
paragraphs, each describing the performance of a student teacher during a particular
practicelesson.Somesubjectswereaskedtoevaluatethequalityofthelessondescribed
in the paragraph in percentile scores, relative to a specified population. Other subjects
were asked to predict, also in percentile scores, the standing of each student teacher 5
years after the practice lesson. The judgments made under the two conditions were
identical.Thatis,thepredictionofaremotecriterion(successofateacherafter5years)
wasidenticaltotheevaluationoftheinformationonwhichthepredictionwasbased(the
qualityofthepracticelesson).Thestudentswhomadethesepredictionswereundoubtedly
awareof thelimitedpredictability ofteaching competence onthe basisof asingle trial
lesson5yearsearlier;nevertheless,theirpredictionswereasextremeastheirevaluations.
The illusion of validity. As we have seen, people often predict by selecting the
outcome (for example, an occupation) that is most representative of the input (for
example, the description of a person). The confidence they have in their prediction
dependsprimarilyonthedegreeofrepresentativeness(thatis,onthequalityofthematch
betweentheselectedoutcomeandtheinput)withlittleornoregardforthefactorsthat
limitpredictiveaccuracy.Thus,peopleexpressgreatconfidenceinthepredictionthata
person is a librarian when given a description of his personality which matches the
stereotype of librarians, even if the description is scanty, unreliable, or outdated. The
unwarrantedconfidencewhichisproducedbyagoodfitbetweenthepredictedoutcome
andtheinputinformationmaybecalledtheillusionofvalidity.Thisillusionpersistseven
whenthejudgeis awareofthefactors that limittheaccuracyof his predictions.Itisa
commonobservationthatpsychologistswhoconductselectioninterviewsoftenexperience
considerableconfidenceintheirpredictions,evenwhentheyknowofthevastliterature
thatshowsselectioninterviewstobehighlyfallible.Thecontinuedrelianceontheclinical
interviewforselection,despiterepeateddemonstrationsofitsinadequacy,amplyatteststo
thestrengthofthiseffect.
The internal consistency of a pattern of inputs is a major determinant of one’s
confidence in predictions based on these inputs. For example, people express more
confidenceinpredictingthefinalgradepointaverageofastudentwhosefirst-yearrecord
consistsentirelyofB’sthaninpredictingthegradepointaverageofastudentwhosefirst-
yearrecordincludesmanyAsandC’s.Highlyconsistentpatternsaremostoftenobserved
whentheinputvariablesarehighlyredundantorcorrelated.Hence,peopletendtohave
great confidence in predictions based on redundant input variables. However, an
elementaryresultinthestatisticsofcorrelationassertsthat,giveninputvariablesofstated
validity,apredictionbasedonseveralsuchinputscanachievehigheraccuracywhenthey
are independent of each other than when they are redundant or correlated. Thus,
redundancyamonginputsdecreasesaccuracyevenasitincreasesconfidence,andpeople
areoftenconfidentinpredictionsthatarequitelikelytobeoffthemark.10
Misconceptionsofregression.Supposealargegroupofchildrenhasbeenexamined
on two equivalent versions of an aptitude test. If one selects ten children from among
thosewhodidbestononeofthetwoversions,hewillusuallyfindtheirperformanceon
thesecondversiontobesomewhatdisappointing.Conversely,ifoneselectstenchildren
fromamongthosewhodidworstononeversion,theywillbefound,ontheaverage,todo
somewhatbetterontheotherversion.Mo[rvstregenerally,considertwovariablesXand
Y which have the same distribution. If one selects individuals whose average X score
deviatesfromthemeanof Xby k units, thenthe average of their Y scores will usually
deviatefromthemeanof Ybylessthank units. Theseobservations illustrateageneral
phenomenon known as regression toward the mean, which was first documented by
Galtonmorethan100yearsago.
Inthenormalcourseoflife,oneencountersmanyinstancesofregressiontowardthe
mean,inthecomparisonoftheheightoffathersandsons,oftheintelligenceofhusbands
and wives, or of the performance of individuals on consecutive examinations.
Nevertheless,peopledonotdevelopcorrectintuitionsaboutthisphenomenon.First,they
donotexpectregressioninmanycontextswhereitisboundtooccur.Second,whenthey
recognizetheoccurrenceofregression,theyofteninventspuriouscausalexplanationsfor
it.11 We suggest that the phenomenon of regression remains elusive because it is
incompatible with the belief that the predicted outcome should be maximally
representativeoftheinput,and,hence,thatthevalueoftheoutcomevariableshouldbeas
extremeasthevalueoftheinputvariable.
Thefailuretorecognizetheimportofregressioncanhaveperniciousconsequences,
asillustratedbythefollowingobservation.12Inadiscussionofflighttraining,experienced
instructorsnotedthatpraiseforanexceptionallysmoothlandingistypicallyfollowedbya
poorer landing on the next try, while harsh criticism after a rough landing is usually
followed by an improvement on the next try. The instructors concluded that verbal
rewardsaredetrimentaltolearning,whileverbalpunishmentsarebeneficial,contraryto
acceptedpsychologicaldoctrine.Thisconclusionisunwarrantedbecauseofthepresence
ofregressiontowardthemean.Asinothercasesofrepeatedexamination,animprovement
will usually follow a poor performance and a deterioration will usually follow an
outstanding performance, even if the instructor does not respond to the trainee’s
achievementonthefirstattempt.Becausetheinstructorshadpraisedtheirtraineesafter
good landings and admonished them after poor ones, they reached the erroneous and
potentiallyharmfulconclusionthatpunishmentismoreeffectivethanreward.
Thus,thefailuretounderstandtheeffectofregressionleadsonetooverestimatethe
effectiveness of punishment and to underestimate the effectiveness of reward. In social
interaction,aswellasintraining,rewardsaretypicallyadministeredwhenperformanceis
good, and punishments are typically administered when performance is poor. By
regressionalone,therefore,behaviorismostlikelytoimproveafterpunishmentandmost
likely to deteriorate after reward. Consequently, the human condition is such that, by
chancealone,oneismostoftenrewardedforpunishingothersandmostoftenpunishedfor
rewardingthem.Peoplearegenerallynotawareofthiscontingency.Infact,theelusive
role of regression in determining the apparent consequences of reward and punishment
seemstohaveescapedthenoticeofstudentsofthisarea.
Availability
Therearesituationsinwhichpeopleassessthefrequencyofaclassortheprobabilityof
an event by the ease with which instances or occurrences can be brought to mind. For
example,onemayassesstheriskofheartattackamongmiddle-agedpeoplebyrecalling
suchoccurrencesa[occpunishmentmongone’sacquaintances.Similarly,onemayevaluate
theprobabilitythatagivenbusinessventurewillfailbyimaginingvariousdifficultiesit
could encounter. This judgmental heuristic is called availability. Availability is a useful
clueforassessingfrequencyorprobability,becauseinstancesoflargeclassesareusually
recalledbetterandfasterthaninstancesoflessfrequentclasses.However,availabilityis
affected by factors other than frequency and probability. Consequently, the reliance on
availabilityleadstopredictablebiases,someofwhichareillustratedbelow.
Biasesduetotheretrievabilityofinstances.Whenthesizeofaclassisjudgedbythe
availabilityofitsinstances,aclasswhoseinstancesareeasilyretrievedwillappearmore
numerous than a class of equal frequency whose instances are less retrievable. In an
elementarydemonstrationofthiseffect,subjectsheardalistofwell-knownpersonalities
ofbothsexesandweresubsequentlyaskedtojudgewhetherthelistcontainedmorenames
ofmenthanofwomen.Differentlistswerepresentedtodifferentgroupsofsubjects.In
someoftheliststhemenwererelativelymorefamousthanthewomen,andinothersthe
women were relatively more famous than the men. In each of the lists, the subjects
erroneously judged that the class (sex) that had the more famous personalities was the
morenumerous.13
In addition to familiarity, there are other factors, such as salience, which affect the
retrievability of instances. For example, the impact of seeing a house burning on the
subjective probability of such accidents is probably greater than the impact of reading
aboutafireinthelocalpaper.Furthermore,recentoccurrencesarelikelytoberelatively
more available than earlier occurrences. It is a common experience that the subjective
probability of traffic accidents rises temporarily when one sees a car overturned by the
sideoftheroad.
Biasesduetotheeffectivenessofasearchset.Supposeonesamplesaword(ofthree
lettersormore)atrandomfromanEnglishtext.Isitmorelikelythatthewordstartswithr
orthatris the thirdletter?Peopleapproachthisproblemby recalling words thatbegin
with r (road) and words that have r in the third position (car) and assess the relative
frequency by the ease with which words of the two types come to mind. Because it is
mucheasiertosearchforwordsbytheirfirstletterthanbytheirthirdletter,mostpeople
judgewordsthatbeginwithagivenconsonanttobemorenumerousthanwordsinwhich
thesameconsonantappearsinthethirdposition.Theydosoevenforconsonants,suchas
rork,thataremorefrequentinthethirdpositionthaninthefirst.14
Differenttaskselicitdifferentsearchsets.Forexample,supposeyouareaskedtorate
thefrequencywithwhichabstractwords(thought,love)andconcretewords(door,water)
appearinwrittenEnglish.Anaturalwaytoanswerthisquestionistosearchforcontexts
inwhichthewordcouldappear.Itseemseasiertothinkofcontextsinwhichanabstract
conceptismentioned(loveinlovestories)thantothinkofcontextsinwhichaconcrete
word(suchasdoor)ismentioned.Ifthefrequencyofwordsisjudgedbytheavailability
of the contexts in which they appear, abstract words will be judged as relatively more
numerous than concrete words. This bias has been observed in a recent study15 which
showedthatthejudgedfrequencyofoccurrenceofabstractwordswasmuchhigherthan
thatofconcretewords,equatedinobjectivefrequency.Abstractwordswerealsojudgedto
appearinamuchgreatervarietyofcontextsthanconcretewords.
Biasesofimaginability.Sometimesonehastoassessthefrequencyofaclasswhose
instancesarenotstoredinmemorybutcanbegeneratedaccordingtoagivenrule.Insuch
situations,onetypicallygeneratesseveralinstancesandevaluatesfrequencyorprobability
bytheease with whichtherelevant instances canbeconstructed. However, theeaseof
constructing instances does not always reflect their actual frequency, and this mode of
evaluation is prone to biases. To illustrate, consider a group of 10 people who form
committeesofkmembers,2=k=8.Howmanydifferentcommitteesofkmemberscanbe
formed? The correct answer to this problem is given by the binomial coefficient (10/k)
which reaches a maximum of 252 for k= 5. Clearly, the number of committees of k
membersequalsthenumberofcommitteesof(10–k)members,becauseanycommittee
ofkmembersdefinesauniquegroupof(10–k)nonmembers.
One way to answer this question without computation is to mentally construct
committeesofkmembersandtoevaluatetheirnumberbytheeasewithwhichtheycome
tomind.Committeesoffewmembers,say2,aremoreavailablethancommitteesofmany
members,say8.Thesimplestschemefortheconstructionofcommitteesisapartitionof
the group into disjoint sets. One readily sees that it is easy to construct five disjoint
committeesof2members,whileitisimpossibletogenerateeventwodisjointcommittees
of8members.Consequently,iffrequencyisassessedbyimaginability,orbyavailability
forconstruction,thesmallcommitteeswillappearmorenumerousthanlargercommittees,
incontrasttothecorrectbell-shapedfunction.Indeed,whennaivesubjectswereaskedto
estimate the number of distinct committees of various sizes, their estimates were a
decreasingmonotonicfunctionofcommitteesize.16Forexample,themedianestimateof
thenumberofcommitteesof2memberswas70,whiletheestimateforcommitteesof8
memberswas20(thecorrectansweris45inbothcases).
Imaginability plays an important role in the evaluation of probabilities in real-life
situations.Theriskinvolvedinanadventurousexpedition,forexample,isevaluatedby
imaginingcontingencieswithwhichtheexpeditionisnotequippedtocope.Ifmanysuch
difficulties are vividly portrayed, the expedition can be made to appear exceedingly
dangerous, although the ease with which disasters are imagined need not reflect their
actual likelihood. Conversely, the risk involved in an undertaking may be grossly
underestimatedifsomepossibledangersareeitherdifficulttoconceiveof,orsimplydo
notcometomind.
Illusorycorrelation.ChapmanandChapman17havedescribedaninterestingbiasin
the judgment of the frequency with which two events co-occur. They presented naive
judges with information concerning several hypothetical mental patients. The data for
each patient consisted of a clinical diagnosis and a drawing of a person made by the
patient. Later the judges estimated the frequency with which each diagnosis (such as
paranoia or suspiciousness) had been accompanied by various features of the drawing
(suchaspeculiareyes).Thesubjectsmarkedlyoverestimatedthefrequencyof[frpicico-
occurrenceofnaturalassociates,suchassuspiciousnessandpeculiareyes.Thiseffectwas
labeled illusory correlation. In their erroneous judgments of the data to which they had
beenexposed,naivesubjects“rediscovered”muchofthecommon,butunfounded,clinical
loreconcerningtheinterpretationofthedraw-a-persontest.Theillusorycorrelationeffect
was extremely resistant to contradictory data. It persisted even when the correlation
betweensymptomanddiagnosiswasactuallynegative,anditpreventedthejudgesfrom
detectingrelationshipsthatwereinfactpresent.
Availability provides a natural account for the illusory-correlation effect. The
judgment of how frequently two events co-occur could be based on the strength of the
associativebondbetweenthem.Whentheassociationisstrong,oneislikelytoconclude
thattheeventshavebeenfrequentlypaired.Consequently,strongassociateswillbejudged
to have occurred together frequently. According to this view, the illusory correlation
betweensuspiciousnessandpeculiardrawingoftheeyes,forexample,isduetothefact
thatsuspiciousnessismorereadilyassociatedwiththeeyesthanwithanyotherpartofthe
body.
Lifelong experience has taught us that, in general, instances of large classes are
recalledbetterandfasterthaninstancesoflessfrequentclasses;thatlikelyoccurrencesare
easiertoimaginethanunlikelyones;andthattheassociativeconnectionsbetweenevents
arestrengthenedwhentheeventsfrequentlyco-occur.Asaresult,manhasathisdisposal
a procedure (the availability heuristic) for estimating the numerosity of a class, the
likelihood of an event, or the frequency of co-occurrences, by the ease with which the
relevant mental operations of retrieval, construction, or association can be performed.
However, as the preceding examples have demonstrated, this valuable estimation
procedureresultsinsystematicerrors.
AdjustmentandAnchoring
Inmanysituations,peoplemakeestimatesbystartingfromaninitialvaluethatisadjusted
to yield the final answer. The initial value, or starting point, may be suggested by the
formulationoftheproblem,oritmaybetheresultofapartialcomputation.Ineithercase,
adjustments are typically insufficient.18 That is, different starting points yield different
estimates,whicharebiasedtowardtheinitialvalues.Wecallthisphenomenonanchoring.
Insufficient adjustment. In a demonstration of the anchoring effect, subjects were
askedtoestimatevariousquantities,statedinpercentages(forexample,thepercentageof
AfricancountriesintheUnitedNations).Foreachquantity,anumberbetween0and100
was determined by spinning a wheel of fortune in the subjects’ presence. The subjects
wereinstructedtoindicatefirstwhetherthatnumberwashigherorlowerthanthevalueof
the quantity, and then to estimate the value of the quantity by moving upward or
downwardfromthegivennumber.Differentgroupsweregivendifferentnumbersforeach
quantity,andthesearbitrarynumbershadamarkedeffectonestimates.Forexample,the
medianestimatesofthepercentageofAfricancountriesintheUnitedNationswere25and
45forgroupsthatreceived10and65,respectively,asstartingpoints.Payoffsforaccuracy
didnotreducetheanchoringeffect.
Anchoringoccurs not only when thestarting point is given tothe subject, but also
whenthesubjectbaseshisestimateontheresultofsomeincompletecomputation.Astudy
ofintuitivenumericalestimationillustratesthiseffect.Twogroupsofhighschoolstudent
[choult os estimated, within 5 seconds, a numerical expression that was written on the
blackboard.Onegroupestimatedtheproduct
8×7×6×5×4×3×2×1
whileanothergroupestimatedtheproduct
1×2×3×4×5×6×7×8
To rapidly answer such questions, people may perform a few steps of computation and
estimate the product by extrapolation or adjustment. Because adjustments are typically
insufficient, this procedure should lead to underestimation. Furthermore, because the
resultofthefirstfewstepsofmultiplication(performedfromlefttoright)ishigherinthe
descending sequence than in the ascending sequence, the former expression should be
judgedlargerthan the latter. Bothpredictionswere confirmed. Themedianestimatefor
theascendingsequencewas512,whilethemedianestimateforthedescendingsequence
was2,250.Thecorrectansweris40,320.
Biases in the evaluation of conjunctive and disjunctive events.In a recentstudyby
Bar-Hillel19subjectsweregiventheopportunitytobetononeoftwoevents.Threetypes
ofeventswereused:(i)simpleevents,suchasdrawingaredmarblefromabagcontaining
50%redmarblesand50%whitemarbles;(ii)conjunctiveevents,suchasdrawingared
marble seven times in succession, with replacement, from a bag containing 90% red
marblesand10%whitemarbles;and(iii)disjunctiveevents,suchasdrawingaredmarble
atleastonceinsevensuccessivetries,withreplacement,fromabagcontaining10%red
marbles and 9% white marbles. In this problem, a significant majority of subjects
preferredtobetontheconjunctiveevent(theprobabilityofwhichis.48)ratherthanon
the simple event (the probability of which is .50). Subjects also preferred to bet on the
simpleevent rather thanon thedisjunctive event,which has aprobability of.52. Thus,
most subjects bet on the less likely event in both comparisons. This pattern of choices
illustrates a general finding. Studies of choice among gambles and of judgments of
probability indicate that people tend to overestimate the probability of conjunctive
events20 and to underestimate the probability of disjunctive events. These biases are
readilyexplainedaseffectsofanchoring.Thestatedprobabilityoftheelementaryevent
(success at any one stage) provides a natural starting point for the estimation of the
probabilities of both conjunctive and disjunctive events. Since adjustment from the
starting point is typically insufficient, the final estimates remain too close to the
probabilitiesoftheelementaryeventsinbothcases.Notethattheoverallprobabilityofa
conjunctive event is lower than the probability of each elementary event, whereas the
overallprobabilityofadisjunctiveeventishigherthantheprobabilityofeachelementary
event. As a consequence of anchoring, the overall probability will be overestimated in
conjunctiveproblemsandunderestimatedindisjunctiveproblems.
Biasesintheevaluationofcompoundeventsareparticularlysignificantinthecontext
ofplanning.Thesuccessfulcompletionofanundertaking,suchasthedevelopmentofa
newproduct,typicallyhasaconjunctivecharacter:fortheundertakingtosucceed,eachof
aseriesofeventsmustoccur.Evenwheneachoftheseeventsisverylikely,theoverall
probability of success can be quite low if the number of events is large. The general
tendency to overestimate the pr [timrall obability of conjunctive events leads to
unwarrantedoptimismintheevaluationofthelikelihoodthataplanwillsucceedorthata
project will be completed on time. Conversely, disjunctive structures are typically
encounteredintheevaluationofrisks.Acomplexsystem,suchasanuclearreactorora
human body, will malfunction if any of its essential components fails. Even when the
likelihoodoffailureineachcomponentisslight,theprobabilityofanoverallfailurecan
be high if many components are involved. Because of anchoring, people will tend to
underestimatetheprobabilitiesoffailureincomplexsystems.Thus,thedirectionofthe
anchoringbiascansometimesbeinferredfromthestructureoftheevent.Thechain-like
structureofconjunctionsleadstooverestimation,thefunnel-likestructureofdisjunctions
leadstounderestimation.
Anchoring in the assessment of subjective probability distributions. In decision
analysis,experts areoftenrequiredtoexpresstheirbeliefsaboutaquantity,suchasthe
value of the Dow Jones average on a particular day, in the form of a probability
distribution. Such a distribution is usually constructed by asking the person to select
valuesofthequantitythatcorrespondtospecifiedpercentilesofhissubjectiveprobability
distribution.Forexample,thejudgemaybeaskedtoselectanumber,X90,suchthathis
subjective probability that this number will be higher than the value of the Dow Jones
averageis.90.Thatis,heshouldselectthevalueX90sothatheisjustwillingtoaccept9
to 1 odds that the Dow Jones average will not exceed it. A subjective probability
distributionforthevalueoftheDowJonesaveragecanbeconstructedfromseveralsuch
judgmentscorrespondingtodifferentpercentiles.
By collecting subjective probability distributions for many different quantities, it is
possible to test the judge for proper calibration. A judge is properly (or externally)
calibratedinasetofproblemsifexactly %ofthetruevaluesoftheassessedquantities
fallsbelowhisstatedvaluesofX.Forexample,thetruevaluesshouldfallbelowX01
for 1% of the quantities and above X99 for 1% of the quantities. Thus, the true values
shouldfallintheconfidenceintervalbetweenX01andX99on98%oftheproblems.
Several investigators21 have obtained probability distributions for many quantities
from a large number of judges. These distributions indicated large and systematic
departures from proper calibration. In most studies, the actual values of the assessed
quantitiesareeithersmallerthanX0lorgreaterthanX99forabout30%oftheproblems.
Thatis,thesubjectsstateoverlynarrowconfidenceintervalswhichreflectmorecertainty
thanisjustifiedbytheirknowledgeabouttheassessedquantities.Thisbiasiscommonto
naiveandtosophisticatedsubjects,anditisnoteliminatedbyintroducingproperscoring
rules,whichprovideincentivesforexternalcalibration.Thiseffectisattributable,inpart
atleast,toanchoring.
To select X90 for the value of the Dow Jones average, for example, it is natural to
begin by thinking about one’s best estimate of the Dow Jones and to adjust this value
upward. If this adjustment—like most others—is insufficient, then X90 will not be
sufficientlyextreme.Asimilaranchoring[laricientlyeffectwilloccurintheselectionof
X10, which is presumably obtained by adjusting one’s best estimate downward.
Consequently, the confidence interval between X10and X90 will be too narrow, and the
assessedprobabilitydistributionwillbetootight.Insupportofthisinterpretationitcanbe
shown that subjective probabilities are systematically altered by a procedure in which
one’sbestestimatedoesnotserveasananchor.
Subjectiveprobabilitydistributionsforagivenquantity(theDowJonesaverage)can
beobtainedintwodifferentways:(i)byaskingthesubjecttoselectvaluesoftheDow
Jones that correspond to specified percentiles of his probability distribution and (ii) by
asking the subject to assess the probabilities that the true value of the Dow Jones will
exceed some specified values. The two procedures are formally equivalent and should
yield identical distributions. However, they suggest different modes of adjustment from
differentanchors.Inprocedure(i),thenaturalstartingpointisone’sbestestimateofthe
quantity.Inprocedure(ii),ontheotherhand,thesubjectmaybeanchoredonthevalue
statedinthequestion.Alternatively,hemaybeanchoredonevenodds,ora50–50chance,
whichisanaturalstartingpointintheestimationoflikelihood.Ineithercase,procedure
(ii)shouldyieldlessextremeoddsthanprocedure(i).
Tocontrastthetwoprocedures,asetof24quantities(suchastheairdistancefrom
NewDelhitoPeking)waspresentedtoagroupofsubjectswhoassessedeitherX10orX90
for each problem. Another group of subjects received the median judgment of the first
groupforeachofthe24quantities.Theywereaskedtoassesstheoddsthateachofthe
givenvaluesexceededthetruevalueoftherelevantquantity.Intheabsenceofanybias,
the second group should retrieve the odds specified to the first group, that is, 9:1.
However,ifevenoddsorthestatedvalueserveasanchors,theoddsofthesecondgroup
shouldbelessextreme,thatis,closerto1:1.Indeed,themedianoddsstatedbythisgroup,
across all problems, were 3:1. When the judgments of the two groups were tested for
external calibration, it was found that subjects in the first group were too extreme, in
accord with earlier studies. The events that they defined as having a probability of .10
actuallyobtainedin24%ofthecases.Incontrast,subjectsinthesecondgroupweretoo
conservative. Events to which they assigned an average probability of .34 actually
obtainedin26%ofthecases.Theseresultsillustratethemannerinwhichthedegreeof
calibrationdependsontheprocedureofelicitation.
Discussion
This article has been concerned with cognitive biases that stem from the reliance on
judgmental heuristics. These biases are not attributable to motivational effects such as
wishfulthinkingorthedistortionofjudgmentsbypayoffsandpenalties.Indeed,severalof
thesevereerrorsofjudgmentreportedearlieroccurreddespitethefactthatsubjectswere
encouragedtobeaccurateandwererewardedforthecorrectanswers.22
Therelianceonheuristicsandtheprevalenceofbiasesarenotrestrictedtolaymen.
Experiencedresearchersarealsopronetothesamebiases—whentheythinkintuitively.
For example, the tendency to predict the outcome that best represents the data, with
insufficientregardforpriorprobability,hasbeenobservedin the intuitivejudgmentsof
individuals who have had extensive training in statistics. [ticor pri23 Although the
statistically sophisticated avoid elementary errors, such as the gamblers fallacy, their
intuitive judgments are liable to similar fallacies in more intricate and less transparent
problems.
Itisnotsurprisingthatusefulheuristicssuchasrepresentativenessandavailabilityare
retained,eventhoughtheyoccasionallyleadtoerrorsinpredictionorestimation.Whatis
perhaps surprising is the failure of people to infer from lifelong experience such
fundamentalstatisticalrulesasregressiontowardthemean,ortheeffectofsamplesizeon
sampling variability. Although everyone is exposed, in the normal course of life, to
numerous examples from which these rules could have been induced, very few people
discovertheprinciplesofsamplingandregressionontheirown.Statisticalprinciplesare
not learned from everyday experience because the relevant instances are not coded
appropriately. For example, people do not discover that successive lines in a text differ
moreinaveragewordlengththandosuccessivepages,becausetheysimplydonotattend
to the average word length of individual lines or pages. Thus, people do not learn the
relationbetweensamplesizeandsamplingvariability,althoughthedataforsuchlearning
areabundant.
Thelackofanappropriatecodealsoexplainswhypeopleusuallydonotdetectthe
biases in their judgments of probability. A person could conceivably learn whether his
judgments are externally calibrated by keeping a tally of the proportion of events that
actuallyoccuramongthosetowhichheassignsthesameprobability.However,itisnot
naturaltogroupeventsbytheirjudgedprobability.Intheabsenceofsuchgroupingitis
impossibleforanindividualtodiscover,forexample,thatonly50%ofthepredictionsto
whichhehasassignedaprobabilityof.9orhigheractuallycametrue.
The empirical analysis of cognitive biases has implications for the theoretical and
applied role of judged probabilities. Modern decision theory24 regards subjective
probability as the quantified opinion of an idealized person. Specifically, the subjective
probabilityofagiveneventisdefinedbythesetofbetsaboutthiseventthatsuchaperson
iswillingtoaccept.Aninternallyconsistent,orcoherent,subjectiveprobabilitymeasure
canbederivedforanindividualifhischoicesamongbetssatisfycertainprinciples,thatis,
theaxiomsofthetheory.Thederivedprobabilityissubjectiveinthesensethatdifferent
individuals are allowed to have different probabilities for the same event. The major
contribution of this approach is that it provides a rigorous subjective interpretation of
probability that is applicable to unique events and is embedded in a general theory of
rationaldecision.
It should perhaps be noted that, while subjective probabilities can sometimes be
inferred from preferences among bets, they are normally not formed in this fashion. A
person bets on team A rather than on team B because he believes that team A is more
likelytowin;hedoesnotinferthisbelieffromhisbettingpreferences.Thus,inreality,
subjectiveprobabilitiesdeterminepreferencesamongbetsandarenotderivedfromthem,
asintheaxiomatictheoryofrationaldecision.25
Theinherentlysubjectivenatureofprobabilityhasledmanystudentstothebeliefthat
coherence,orinternalconsistency,istheonlyvalidcriterionbywhichjudgedprobabilities
shouldbeevaluated.Fromthestandpointoftheformaltheoryofsubjectiveprobability,
any set of internally consistent probability judgments is as good as any other. This
criterion is not entirely satisfactory [ saf sub, because an internally consistent set of
subjective probabilities can be incompatible with other beliefs held by the individual.
Consider a person whose subjective probabilities for all possible outcomes of a coin-
tossinggamereflectthegamblersfallacy.Thatis,hisestimateoftheprobabilityoftails
onaparticulartossincreaseswiththenumberofconsecutiveheadsthatprecededthattoss.
Thejudgmentsofsuchapersoncouldbeinternallyconsistentandthereforeacceptableas
adequate subjective probabilities according to the criterion of the formal theory. These
probabilities,however,areincompatiblewiththegenerallyheldbeliefthatacoinhasno
memory and is therefore incapable of generating sequential dependencies. For judged
probabilities to be considered adequate, or rational, internal consistency is not enough.
Thejudgmentsmustbecompatiblewiththeentirewebofbeliefsheldbytheindividual.
Unfortunately,therecanbenosimpleformalprocedureforassessingthecompatibilityof
asetofprobabilityjudgmentswiththejudge’stotalsystemofbeliefs.Therationaljudge
willneverthelessstriveforcompatibility,eventhoughinternalconsistencyismoreeasily
achieved and assessed. In particular, he will attempt to make his probability judgments
compatiblewithhisknowledgeaboutthesubjectmatter,thelawsofprobability,andhis
ownjudgmentalheuristicsandbiases.
Summary
This article described three heuristics that are employed in making judgments under
uncertainty:(i)representativeness,whichisusuallyemployedwhenpeopleareaskedto
judge the probability that an object or event A belongs to class or process B; (ii)
availabilityofinstancesorscenarios,whichisoftenemployedwhenpeopleareaskedto
assess the frequency of a class or the plausibility of a particular development; and (iii)
adjustment from an anchor, which is usually employed in numerical prediction when a
relevantvalueisavailable.Theseheuristicsarehighlyeconomicalandusuallyeffective,
but they lead to systematic and predictable errors. A better understanding of these
heuristicsandofthebiasestowhichtheyleadcouldimprovejudgmentsanddecisionsin
situationsofuncertainty.
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Notes
1.
D.KahnemanandA.Tversky,“OnthePsychologyofPrediction,”PsychologicalReview
80(1973):237–51.
2.
Ibid.
3.
Ibid.
4.
D. Kahneman and A. Tversky, “Subjective Probability: A Judgment of
Representativeness,”CognitivePsychology3(1972):430–54.
5.
Ibid.
6.
W.Edwards,“ConservatisminHumanInformationProcessing,”inFormalRepresentation
ofHumanJudgment,ed.B.Kleinmuntz(NewYork:Wiley,1968),17–52.
[t=“orm
7.
KahnemanandTversky,“SubjectiveProbability.”
8.
A. Tversky and D. Kahneman, “Belief in the Law of Small Numbers,” Psychological
Bulletin76(1971):105–10.
9.
KahnemanandTversky,“OnthePsychologyofPrediction.”
10.
Ibid.
11.
Ibid.
12.
Ibid.
13.
A. Tversky and D. Kahneman, “Availability: A Heuristic for Judging Frequency and
Probability,”CognitivePsychology5(1973):207–32.
14.
Ibid.
15.
R. C. Galbraith and B. J. Underwood, “Perceived Frequency of Concrete and Abstract
Words,”Memory&Cognition1(1973):56–60.
16.
TverskyandKahneman,“Availability.”
17.
L.J.ChapmanandJ.P.Chapman,“GenesisofPopularbutErroneousPsychodiagnostic
Observations,”JournalofAbnormalPsychology73(1967):193–204;L.J.Chapmanand
J.P.Chapman,“IllusoryCorrelationasanObstacletotheUseofValidPsychodiagnostic
Signs,”JournalofAbnormalPsychology74(1969):271–80.
18.
P.SlovicandS.Lichtenstein,“ComparisonofBayesianandRegressionApproachestothe
Study of Information Processing in Judgment,” Organizational Behavior & Human
Performance6(1971):649–744.
19.
M. Bar-Hillel, “On the Subjective Probability of Compound Events,” Organizational
Behavior&HumanPerformance9(1973):396–406.
20.
J. Cohen, E. I. Chesnick, and D. Haran, “A Confirmation of the Inertial-? Effect in
SequentialChoiceandDecision,”BritishJournalofPsychology63(1972):41–46.
21.
M.Alpe[spa
Acta Psychologica 35 (1971): 478–94; R. L. Winkler, “The Assessment of Prior
Distributionsin Bayesian Analysis,”Journal of the American Statistical Association62
(1967):776–800.
22.
KahnemanandTversky,“SubjectiveProbability”;TverskyandKahneman,“Availability.”
23.
Kahneman and Tversky, “On the Psychology of Prediction”; Tversky and Kahneman,
“BeliefintheLawofSmallNumbers.”
24.
L.J.Savage,TheFoundationsofStatistics(NewYork:Wiley,1954).
25.
Ibid.; B. de Finetti, “Probability: Interpretations,” in International Encyclopedia of the
SocialSciences,ed.D.E.Sills,vol.12(NewYork:Macmillan,1968),496–505.
P
AppendixB:Choices,Values,AndFrames*
DanielKahnemanandAmosTversky
ABSTRACT: We discuss the cognitive and the psychophysical determinants of choice in
riskyandrisklesscontexts.Thepsychophysicsofvalueinduceriskaversioninthedomain
of gains and risk seeking in the domain of losses. The psychophysics of chance induce
overweighting of sure things and of improbable events, relative to events of moderate
probability.Decisionproblemscanbedescribedorframedinmultiplewaysthatgiverise
to different preferences, contrary to the invariance criterion of rational choice. The
process of mental accounting, in which people organize the outcomes of transactions,
explains some anomalies of consumer behavior. In particular, the acceptability of an
option can depend on whether a negative outcome is evaluated as a cost or as an
uncompensated loss. The relation between decision values and experience values is
discussed.
Making decisions is like speaking prose—people do it all the time, knowingly or
unknowingly.Itishardlysurprising,then,thatthetopicofdecisionmakingissharedby
many disciplines, from mathematics and statistics, through economics and political
science, to sociology and psychology. The study of decisions addresses both normative
and descriptive questions. The normative analysis is concerned with the nature of
rationality and the logic of decision making. The descriptive analysis, in contrast, is
concernedwithpeople’sbeliefsandpreferencesastheyare,not as theyshouldbe.The
tensionbetweennormativeanddescriptiveconsiderationscharacterizesmuchofthestudy
ofjudgmentandchoice.
Analyses of decision making commonly distinguish risky and riskless choices. The
paradigmaticexampleofdecisionun^v>
RiskyChoice
Riskychoices,suchaswhetherornottotakeanumbrellaandwhetherornottogotowar,
aremadewithoutadvanceknowledgeoftheirconsequences.Becausetheconsequencesof
suchactionsdependonuncertaineventssuchastheweatherortheopponent’sresolve,the
choiceofanactmaybeconstruedastheacceptanceofagamblethatcanyieldvarious
outcomes with different probabilities. It is therefore natural that the study of decision
making under risk has focused on choices between simple gambles with monetary
outcomesandspecifiedprobabilities,inthehopethatthesesimpleproblemswillreveal
basicattitudestowardriskandvalue.
Weshallsketchanapproachtoriskychoicethatderivesmanyofitshypothesesfrom
apsychophysicalanalysisofresponsestomoneyandtoprobability.Thepsychophysical
approach to decision making can be traced to a remarkable essay that Daniel Bernoulli
published in 1738 (Bernoulli 1954) in which he attempted to explain why people are
generally averse to risk and why risk aversion decreases with increasing wealth. To
illustrate risk aversion and Bernoulli’s analysis, consider the choice between a prospect
that offers an 85% chance to win $1,000 (with a 15% chance to win nothing) and the
alternativeofreceiving$800forsure.Alargemajorityofpeoplepreferthesurethingover
thegamble,althoughthegamblehashigher(mathematical)expectation.Theexpectation
ofamonetarygambleisaweightedaverage,whereeachpossibleoutcomeisweightedby
its probability of occurrence. The expectation of the gamble in this example is .85 ×
$1,000+.15×$0=$850,whichexceedstheexpectationof$800associatedwiththesure
thing. The preference for the sure gain is an instance of risk aversion. In general, a
preferenceforasureoutcomeoveragamblethathashigherorequalexpectationiscalled
risk averse, and the rejection of a sure thing in favor of a gamble of lower or equal
expectationiscalledriskseeking.
Bernoullisuggestedthatpeopledonotevaluateprospectsbytheexpectationoftheir
monetary outcomes, but rather by the expectation of the subjective value of these
outcomes.Thesubjectivevalueofagambleisagainaweightedaverage,butnowitisthe
subjective value of each outcome that is weighted by its probability. To explain risk
aversionwithinthisframework,Bernoulliproposed thatsubjectivevalue, or utility,isa
concavefunctionofmoney.Insuchafunction,thedifferencebetweentheutilitiesof$200
and$100,forexample,isgreaterthantheutilitydifferencebetween$1,200and$1,100.It
followsfromconcavitythatthesubjectivevalueattachedtoagainof$800ismorethan
80%ofthevalueofagainof$1,000.Consequently,theconcavityoftheutilityfunction
entailsariskaversepreferenceforasuregainof$800overan80%chancetowin$1,000,
althoughthetwoprospectshavethesamemonetaryexpectation.
Itiscustomaryindecisionanalysistodescribetheoutcomesofdecisionsintermsof
totalwealth.Forexample,anoffertobet$20onthetossofafaircoinisrepresentedasa
choicebetweenanindividual’scurrentwealthWandanevenchancetomovetoW+$20
ortoWnindispan>–$20.Thisrepresentationappearspsychologicallyunrealistic:People
donotnormallythinkofrelativelysmalloutcomesintermsofstatesofwealthbutrather
intermsofgains,losses,andneutraloutcomes(suchasthemaintenanceofthestatusquo).
If the effective carriers of subjective value are changes of wealth rather than ultimate
states of wealth, as we propose, the psychophysical analysis of outcomes should be
appliedtogainsandlossesratherthantototalassets.Thisassumptionplaysacentralrole
in a treatment of risky choice that we called prospect theory (Kahneman and Tversky
1979).Introspectionaswellaspsychophysicalmeasurementssuggestthatsubjectivevalue
isaconcavefunctionofthesizeofagain.Thesamegeneralizationappliestolossesas
well.Thedifferenceinsubjectivevaluebetweenalossof$200andalossof$100appears
greater than the difference in subjective value between a loss of $1,200 and a loss of
$1,100.Whenthevaluefunctionsforgainsandforlossesarepiecedtogether,weobtain
anS-shapedfunctionofthetypedisplayedinFigure1.
Figure1.AHypotheticalValueFunction
ThevaluefunctionshowninFigure1is(a)definedongainsandlossesratherthanon
totalwealth,(b)concaveinthedomainofgainsandconvexinthedomainoflosses,and
(c)considerablysteeperforlossesthanforgains.Thelastproperty,whichwelabelloss
aversion,expressestheintuitionthatalossof$Xismoreaversivethanagainof$Xis
attractive.Lossaversionexplainspeople’sreluctancetobetonafaircoinforequalstakes:
The attractiveness of the possible gain is not nearly sufficient to compensate for the
aversiveness of the possible loss. For example, most respondents in a sample of
undergraduatesrefusedto stake$10onthetossofacoiniftheystoodtowinlessthan
$30.
The assumption of risk aversion has played a central role in economic theory.
However,justastheconcavityofthevalueofgainsentailsriskaversion,theconvexityof
thevalueoflossesentailsriskseeking.Indeed,riskseekinginlossesisarobusteffect,
particularly when the probabilities of loss are substantial. Consider, for example, a
situationinwhichanindividualisforcedtochoosebetweenan85%chancetolose$1,000
(witha15%chancetolosenothing)andasurelossof$800.Alargemajorityofpeople
express a preference for the gamble over the sure loss. This is a risk seeking choice
becausetheexpectationof thegamble(–$850)is inferiortothe expectation ofthesure
loss (–$800). Risk seeking in the domain of losses has been confirmed by several
investigators(FishburnandKochenberger1979;HersheyandSchoemaker1980;Payne,
Laughhunn,andCrum1980;Slovic,Fischhoff,andLichtenstein1982).Ithasalsobeen
observedwithnonmonetaryoutcomes,suchashoursofpain(ErakerandSox1981)and
lossofhumanlives(Fischhoff1983;Tversky1977;TverskyandKahneman1981).Isit
wrongtoberiskaverseinthedomainofgainsandriskseekinginthedomainoflosses?
These preferences conform to compelling intuitions about the subjective value of gains
and losses, and the presumption is that people should be entitled to their own values.
However, we shall see that an S-shaped value function has implications that are
normativelyunacceptable.
Toaddressthenormativeissueweturnfrompsychologytodecisiontheory.Modern
decision theory can be said to begin with the pioneering work of von Neumann and
Morgenstern(1947),wholaiddownseveralqualitativeprinciples,oraxioms,thatshouldg
ctha211;$850)overn thepreferencesofarationaldecisionmaker.Theiraxiomsincluded
transitivity(ifAispreferredtoBandBispreferredtoC,thenAispreferredtoC),and
substitution(ifAispreferredtoB,thenanevenchancetogetAorCispreferredtoan
evenchancetogetBorC),alongwithotherconditionsofamoretechnicalnature.The
normativeandthedescriptivestatusoftheaxiomsofrationalchoicehavebeenthesubject
of extensive discussions. In particular, there is convincing evidence that people do not
always obey the substitution axiom, and considerable disagreement exists about the
normative merit of this axiom (e.g., Allais and Hagen 1979). However, all analyses of
rational choice incorporate two principles: dominance and invariance. Dominance
demandsthatifprospectAisatleastasgoodasprospectBineveryrespectandbetter
thanBinatleastonerespect,thenAshouldbepreferredtoB.Invariancerequiresthatthe
preferenceorderbetweenprospectsshouldnotdependonthemannerinwhichtheyare
described. In particular, two versions of a choice problem that are recognized to be
equivalent when shown together should elicit the same preference even when shown
separately. We now show that the requirement of invariance, however elementary and
innocuousitmayseem,cannotgenerallybesatisfied.
FramingofOutcomes
Riskyprospectsarecharacterizedbytheirpossibleoutcomesandbytheprobabilitiesof
theseoutcomes.Thesameoption,however,canbeframedordescribedindifferentways
(TverskyandKahneman1981).Forexample,thepossibleoutcomesofagamblecanbe
framed either as gains and losses relative to the status quo or as asset positions that
incorporate initial wealth. Invariance requires that such changes in the description of
outcomesshouldnotalterthepreferenceorder.Thefollowingpairofproblemsillustrates
a violation of this requirement. The total number of respondents in each problem is
denotedbyN,andthepercentagewhochoseeachoptionisindicatedinparentheses.
Problem 1 (N = 152): Imagine that the U.S. is preparing for the outbreak of an
unusual Asian disease, which is expected to kill 600 people. Two alternative
programstocombatthediseasehavebeenproposed.Assumethattheexactscientific
estimatesoftheconsequencesoftheprogramsareasfollows:
IfProgramAisadopted,200peoplewillbesaved.(72%)
IfProgramBisadopted,thereisaone-thirdprobabilitythat600peoplewillbe
savedandatwo-thirdsprobabilitythatnopeoplewillbesaved.(28%)
Whichofthetwoprogramswouldyoufavor?
TheformulationofProblem1implicitlyadoptsasareferencepointastateofaffairs
inwhichthediseaseisallowedtotakeitstollof600lives.Theoutcomesoftheprograms
includethereferencestateandtwopossiblegains,measuredbythenumberoflivessaved.
As expected, preferences are risk averse: A clear majority of respondents prefer saving
200livesforsureoveragamblethatoffersaone-thirdchanceofsaving600lives.Now
consider another problem in which the same cover story is followed by a different
descriptionoftheprospectsassociatedwiththetwoprograms:
Problem2(N=155):
IfProgramCisadopted,400peoplewilldie.(22%)
IfProgramDisadopted,thereisaone-thirdprobabilitythatnobodywilldieanda
two-thirdsprobabilitythat600peoplewilldie.(78%)
ItiseasytoverifythatoptionsCandDinProblem2areundistinguishableinreal
terms from options A and B in Problem 1, respectively. The second version, however,
assumesa reference state in whichno onedies of thedisease. Thebest outcome is the
maintenanceofthisstateandthealternativesarelossesmeasuredbythenumberofpeople
thatwilldieof the disease.Peoplewhoevaluateoptions in thesetermsareexpectedto
showariskseekingpreferenceforthegamble(optionD)overthesurelossof400lives.
Indeed,thereismoreriskseekinginthesecondversionoftheproblemthanthereisrisk
aversioninthefirst.
The failure of invariance is both pervasive and robust. It is as common among
sophisticated respondents as among naive ones, and it is not eliminated even when the
samerespondents answerboth questions withina fewminutes. Respondents confronted
with their conflicting answers are typically puzzled. Even after rereading the problems,
theystillwishtoberiskaverseinthe“livessaved”version;theywishtoberiskseekingin
the“liveslost”version;andtheyalsowishtoobeyinvarianceandgiveconsistentanswers
inthetwoversions.Intheirstubbornappeal,framingeffectsresembleperceptualillusions
morethancomputationalerrors.
The following pair of problems elicits preferences that violate the dominance
requirementofrationalchoice.
Problem3(N=86):Choosebetween:
E.25%chancetowin$240and75%chancetolose$760(0%)
F.25%chancetowin$250and75%chancetolose$750(100%)
ItiseasytoseethatFdominatesE.Indeed,allrespondentschoseaccordingly.
Problem 4 (N = 150): Imagine that you face the following pair of concurrent
decisions.
Firstexaminebothdecisions,thenindicatetheoptionsyouprefer.
Decision(i)Choosebetween:
A.asuregainof$240(84%)
B.25%chancetogain$1,000and75%chancetogainnothing(16%)
Decision(ii)Choosebetween:
C.asurelossof$750(13%)
D.75%chancetolose$1,000and25%chancetolosenothing(87%)
As expected from the previous analysis, a large majority of subjects made a risk
aversechoiceforthesuregainoverthepositivegambleinthefirstdecision,andaneven
largermajorityofsubjectsmadeariskseekingchoiceforthegambleoverthesurelossin
theseconddecision.Infact,73%oftherespondentschoseAandDandonly3%choseB
andC.The same cdCcefpattern of resultswasobservedin amodifiedversionof the
problem,withreducedstakes,inwhichundergraduatesselectedgamblesthattheywould
actuallyplay.
BecausethesubjectsconsideredthetwodecisionsinProblem4simultaneously,they
expressed in effect a preference for A and D over B and C. The preferred conjunction,
however,isactuallydominatedbytherejectedone.Addingthesuregainof$240(option
A)tooptionDyieldsa25%chancetowin$240anda75%chancetolose$760.Thisis
precisely option E in Problem 3. Similarly, adding the sure loss of $750 (option C) to
option B yields a 25% chance to win $250 and a 75% chance to lose $750. This is
precisely option F in Problem 3. Thus, the susceptibility to framing and the S-shaped
valuefunctionproduceaviolationofdominanceinasetofconcurrentdecisions.
The moral of these results is disturbing: Invariance is normatively essential,
intuitively compelling, and psychologically unfeasible. Indeed, we conceive only two
ways of guaranteeing invariance. The first is to adopt a procedure that will transform
equivalent versions of any problem into the same canonical representation. This is the
rationale for the standard admonition to students of business, that they should consider
each decision problem in terms of total assets rather than in terms of gains or losses
(Schlaifer1959).Sucharepresentationwouldavoidtheviolationsofinvarianceillustrated
in the previous problems, but the advice is easier to give than to follow. Except in the
context of possible ruin, it is more natural to consider financial outcomes as gains and
losses rather than as states of wealth. Furthermore, a canonical representation of risky
prospectsrequiresacompoundingofalloutcomesofconcurrentdecisions(e.g.,Problem
4) that exceeds the capabilities of intuitive computation even in simple problems.
Achieving a canonical representation is even more difficult in other contexts such as
safety,health,orqualityoflife.Shouldweadvisepeopletoevaluatetheconsequenceofa
publichealthpolicy(e.g.,Problems1and2)intermsofoverallmortality,mortalitydueto
diseases,orthenumberofdeathsassociatedwiththeparticulardiseaseunderstudy?
Anotherapproachthatcouldguaranteeinvarianceistheevaluationofoptionsinterms
oftheiractuarialratherthantheirpsychologicalconsequences.Theactuarialcriterionhas
some appeal in the context of human lives, but it is clearly inadequate for financial
choices, as has been generally recognized at least since Bernoulli, and it is entirely
inapplicabletooutcomesthatlackanobjectivemetric.Weconcludethatframeinvariance
cannotbeexpectedtoholdandthatasenseofconfidenceinaparticularchoicedoesnot
ensurethatthesamechoicewouldbemadeinanotherframe.Itisthereforegoodpractice
totesttherobustnessofpreferencesbydeliberateattemptstoframeadecisionproblemin
morethanoneway(Fischhoff,Slovic,andLichtenstein1980).
ThePsychophysicsofChances
OurdiscussionsofarhasassumedaBernoullianexpectationruleaccordingtowhichthe
value,orutility,ofanuncertainprospectisobtainedbyaddingtheutilitiesofthepossible
outcomes, each weighted by its probability. To examine this assumption, let us again
consultpsychophysicalintuitions. Setting thevalue of thestatus quo atzero, imagine a
cashgift,sayof$300,andassignitavalueofone.Nowimaginethatyouareonlygivena
tickettoalotterythathasasingleprizeof$300.Howdoesthevalueoftheticketvaryasa
functionoftheprobabilityofwinningtheprize?Barringutilityforgambling,thevalueof
suchaprospectmustvarybetweenzero(whenthechanceofwinningisnilcinntric.We)
andone(whenwinning$300isacertainty).
Intuitionsuggeststhatthevalueoftheticketisnotalinearfunctionoftheprobability
ofwinning,asentailedbytheexpectationrule.Inparticular,anincreasefrom0%to5%
appears to have a larger effect than an increase from 30% to 35%, which also appears
smaller than an increase from 95% to 100%. These considerations suggest a category-
boundaryeffect:Achangefromimpossibilitytopossibilityorfrompossibilitytocertainty
hasabiggerimpactthanacomparablechangeinthemiddleofthescale.Thishypothesis
isincorporatedintothecurvedisplayedinFigure2,whichplotstheweightattachedtoan
eventasafunctionofitsstatednumericalprobability.ThemostsalientfeatureofFigure2
isthatdecisionweightsareregressivewithrespecttostatedprobabilities.Exceptnearthe
endpoints, an increase of .05 in the probability of winning increases the value of the
prospectbylessthan5%ofthevalueoftheprize.Wenextinvestigatetheimplicationsof
thesepsychophysicalhypothesesforpreferencesamongriskyoptions.
Figure2.AHypotheticalWeightingFunction
InFigure2,decisionweightsarelowerthanthecorrespondingprobabilitiesovermost
of the range. Underweighting of moderate and high probabilities relative to sure things
contributes to risk aversion in gains by reducing the attractiveness of positive gambles.
Thesameeffectalsocontributestoriskseekinginlossesbyattenuatingtheaversiveness
of negative gambles. Low probabilities, however, are overweighted, and very low
probabilities are either overweighted quite grossly or neglected altogether, making the
decision weights highly unstable in that region. The overweightingof low probabilities
reversesthepatterndescribedabove:Itenhancesthevalueoflongshotsandamplifiesthe
aversiveness of a small chance of a severe loss. Consequently, people are often risk
seekingindealingwithimprobablegainsandriskaverseindealingwithunlikelylosses.
Thus,thecharacteristicsofdecisionweightscontributetotheattractivenessofbothlottery
ticketsandinsurancepolicies.
Thenonlinearityofdecisionweightsinevitablyleadstoviolationsofinvariance,as
illustratedinthefollowingpairofproblems:
Problem5(N=85):Considerthefollowingtwo-stagegame.Inthefirststage,there
is a 75% chance to end the game without winning anything and a 25% chance to
moveintothesecondstage.Ifyoureachthesecondstageyouhaveachoicebetween:
A.asurewinof$30(74%)
B.80%chancetowin$45(26%)
Yourchoicemustbemadebeforethegamestarts,i.e.,beforetheoutcomeofthefirst
stageisknown.Pleaseindicatetheoptionyouprefer.
Problem6(N=81):Whichofthefollowingoptionsdoyouprefer?
C.25%chancetowin$30(42%)
D.20%chancetowin$45(58%)
BecausethereisonechanceitoceinfourtomoveintothesecondstageinProblem
5,prospectAoffersa.25probabilityofwinning$30,andprospectBoffers.25×.80=.20
probability of winning $45. Problems 5 and 6 are therefore identical in terms of
probabilities and outcomes. However, the preferences are not the same in the two
versions:AclearmajorityfavorsthehigherchancetowinthesmalleramountinProblem
5,whereasthemajoritygoestheotherwayinProblem6.Thisviolationofinvariancehas
beenconfirmedwithbothrealandhypotheticalmonetarypayoffs(thepresentresultsare
withrealmoney),withhumanlivesasoutcomes,andwithanonsequentialrepresentation
ofthechanceprocess.
Weattributethefailureofinvariancetotheinteractionoftwofactors:theframingof
probabilitiesandthenonlinearityofdecisionweights.Morespecifically,weproposethat
inProblem5peopleignorethefirstphase,whichyieldsthesameoutcomeregardlessof
thedecisionthatismade,andfocustheirattentiononwhathappensiftheydoreachthe
second stage of the game. In that case, of course, they face a sure gain if they choose
optionAandan80%chanceofwinningiftheyprefertogamble.Indeed,people’schoices
inthesequentialversionarepracticallyidenticaltothechoicestheymakebetweenasure
gain of $30 and an 85% chance to win $45. Because a sure thing is overweighted in
comparisonwitheventsofmoderateorhighprobability,theoptionthatmayleadtoagain
of$30ismoreattractiveinthesequentialversion.Wecallthisphenomenonthepseudo-
certaintyeffectbecauseaneventthatisactuallyuncertainisweightedasifitwerecertain.
Acloselyrelatedphenomenoncanbedemonstratedatthelowendoftheprobability
range. Suppose you are undecided whether or not to purchase earthquake insurance
becausethepremiumisquitehigh.Asyouhesitate,yourfriendlyinsuranceagentcomes
forthwithanalternativeoffer:“Forhalftheregularpremiumyoucanbefullycoveredif
thequakeoccurs onanodd dayofthe month.Thisis a gooddealbecause forhalfthe
price you are covered for more than half the days.” Why do most people find such
probabilistic insurance distinctly unattractive? Figure 2 suggests an answer. Starting
anywhere in the region of low probabilities, the impact on the decision weight of a
reductionofprobabilityfromptop/2isconsiderablysmallerthantheeffectofareduction
fromp/2to0.Reducingtheriskbyhalf,then,isnotworthhalfthepremium.
The aversion to probabilistic insurance is significant for three reasons. First, it
underminestheclassicalexplanationofinsuranceintermsofaconcaveutilityfunction.
Accordingtoexpectedutilitytheory,probabilisticinsuranceshouldbedefinitelypreferred
tonormalinsurancewhenthelatterisjustacceptable(seeKahnemanandTversky1979).
Second,probabilisticinsurancerepresentsmanyformsofprotectiveaction,suchashaving
amedicalcheckup, buying new tires, orinstallingaburglaralarmsystem.Suchactions
typicallyreduce theprobability ofsome hazardwithout eliminatingit altogether. Third,
theacceptabilityofinsurancecanbemanipulatedbytheframingofthecontingencies.An
insurancepolicythatcoversfirebutnotflood,forexample,couldbeevaluatedeitheras
fullprotectionagainstaspecificrisk(e.g.,fire),orasareductionintheoverallprobability
of property loss. Figure 2 suggests that people greatly undervalue a reduction in the
probabilityofahazardincomparisontothecompleteeliminationofthathazard.Hence,
insuranceshouldappearmoreattractivewhenitisframedastheeliminationofriskthan
when it is described as a reduction of risk. Indeed, Slovic, Fischhoff, and Lichtenstein
(1982) showed that a hypotheti ct arnative cal vaccine that reduces the probability of
contractingadiseasefrom20%to10%islessattractiveifitisdescribedaseffectivein
halfofthecasesthanifitispresentedasfullyeffectiveagainstoneoftwoexclusiveand
equallyprobablevirusstrainsthatproduceidenticalsymptoms.
FormulationEffects
Sofarwehavediscussedframingasatooltodemonstratefailuresofinvariance.Wenow
turnattentiontotheprocessesthatcontroltheframingofoutcomesandevents.Thepublic
healthproblemillustratesaformulationeffectinwhichachangeofwordingfrom“lives
saved” to “lives lost” induced a marked shift of preference from risk aversion to risk
seeking.Evidently,thesubjectsadoptedthedescriptionsoftheoutcomesasgiveninthe
questionandevaluatedtheoutcomesaccordinglyasgainsorlosses.Anotherformulation
effect was reported by McNeil, Pauker, Sox, and Tversky (1982). They found that
preferences of physicians and patients between hypothetical therapies for lung cancer
varied markedly when their probable outcomes were described in terms of mortality or
survival.Surgery,unlikeradiationtherapy,entailsariskofdeathduringtreatment.Asa
consequence, the surgery option was relatively less attractive when the statistics of
treatmentoutcomesweredescribedintermsofmortalityratherthanintermsofsurvival.
Aphysician,andperhapsapresidentialadvisoraswell,couldinfluencethedecision
made by the patient or by the President, without distorting or suppressing information,
merely by the framing of outcomes and contingencies. Formulation effects can occur
fortuitously, without anyone being aware of the impact of the frame on the ultimate
decision.Theycanalsobeexploiteddeliberatelytomanipulatetherelativeattractiveness
of options. For example, Thaler (1980) noted that lobbyists for the credit card industry
insisted that any price difference between cash and credit purchases be labeled a cash
discountratherthanacreditcardsurcharge.Thetwolabelsframethepricedifferenceasa
gainorasalossbyimplicitlydesignatingeitherthelowerorthehigherpriceasnormal.
Becauselossesloomlargerthangains,consumersarelesslikelytoacceptasurchargethan
toforgoadiscount.Asistobeexpected,attemptstoinfluenceframingarecommoninthe
marketplaceandinthepoliticalarena.
The evaluation of outcomes is susceptible to formulation effects because of the
nonlinearity of the value function and the tendency of people to evaluate options in
relationtothereferencepointthatissuggestedorimpliedbythestatementoftheproblem.
It is worthy of note that in other contexts people automatically transform equivalent
messagesintothe samerepresentation.Studiesoflanguagecomprehensionindicatethat
people quickly recode much of what they hear into an abstract representation that no
longerdistinguisheswhethertheideawasexpressedinanactiveorinapassiveformand
nolongerdiscriminateswhatwasactuallysaidfromwhatwasimplied,presupposed,or
implicated (Clark and Clark 1977). Unfortunately, the mental machinery that performs
theseoperationssilentlyandeffortlesslyisnotadequatetoperformthetaskofrecoding
the two versions of the public health problem or the mortality survival statistics into a
commonabstractform.
TransactionsandTrades
Ouranalysisofframingandofvaluecanbeextendedtochoicesbetweenmultiattribute
options,suchastheacceptabilityofatransactionoratrade.Weproposethat,inorderto
evaluateamultiattributeoption,apersonsetsupamencsetoptiotalaccountthatspecifies
the advantages and the disadvantages associated with the option, relative to a
multiattributereferencestate.Theoverallvalueofanoptionisgivenbythebalanceofits
advantages and its disadvantages in relation to the reference state. Thus, an option is
acceptable if the value of its advantages exceeds the value of its disadvantages. This
analysis assumes psychological—but not physical—separability of advantages and
disadvantages.Themodeldoesnotconstrainthemannerinwhichseparateattributesare
combinedtoformoverallmeasuresofadvantageandofdisadvantage,butitimposeson
thesemeasuresassumptionsofconcavityandoflossaversion.
Our analysis of mental accounting owes a large debt to the stimulating work of
Richard Thaler (1980, 1985), who showed the relevance of this process to consumer
behavior.Thefollowingproblem,basedonexamplesofSavage(1954)andThaler(1980),
introducessomeoftherulesthatgoverntheconstructionofmentalaccountsandillustrates
theextensionoftheconcavityofvaluetotheacceptabilityoftransactions.
Problem7:Imaginethatyouareabouttopurchaseajacketfor$125andacalculator
for$15.Thecalculatorsalesmaninformsyouthatthecalculatoryouwishtobuyis
on sale for $10 at the other branch of the store, located 20 minutes’ drive away.
Wouldyoumakeatriptotheotherstore?
This problem is concerned with the acceptability of an option that combines a
disadvantage of inconvenience with a financial advantage that can be framed as a
minimal, topical, or comprehensive account. The minimal account includes only the
differences between the two options and disregards the features that they share. In the
minimalaccount,theadvantageassociatedwithdrivingtotheotherstoreisframedasa
gainof$5.Atopicalaccountrelatestheconsequencesofpossiblechoicestoareference
levelthatisdeterminedbythecontextwithinwhichthedecisionarises.Inthepreceding
problem,therelevanttopicisthepurchaseofthecalculator,andthebenefitofthetripis
thereforeframedasareductionoftheprice,from$15to$10.Becausethepotentialsaving
isassociatedonlywiththecalculator,thepriceofthejacketisnotincludedinthetopical
account.Thepriceofthejacket, as wellasotherexpenses,couldwellbe included ina
morecomprehensiveaccountinwhichthesavingwouldbeevaluatedinrelationto,say,
monthlyexpenses.
Theformulationoftheprecedingproblemappearsneutralwithrespecttotheadoption
ofaminimal,topical,orcomprehensiveaccount.Wesuggest,however,thatpeoplewill
spontaneouslyframedecisionsintermsoftopicalaccountsthat,inthecontextofdecision
making, play a role analogous to that of “good forms” in perception and of basic-level
categoriesincognition.Topicalorganization,inconjunctionwiththeconcavityofvalue,
entailsthatthewillingnesstotraveltotheotherstoreforasavingof$5onacalculator
shouldbeinverselyrelatedtothepriceofthecalculatorandshouldbeindependentofthe
priceofthejacket.Totestthisprediction,weconstructedanotherversionoftheproblem
inwhichthepricesofthetwoitemswereinterchanged.Thepriceofthecalculatorwas
givenas$125inthefirststoreand$120intheotherbranch,andthepriceofthejacket
wassetat$15.Aspredicted,theproportionsofrespondentswhosaidtheywouldmakethe
tripdifferedsharplyinthetwoproblems.Theresultsshowedthat68%oftherespondents
(N=88)werewillingtodrivetotheotherbranchtosave$5ona$15calculator,butonly
29%of93respondentswerewillingtomakethesametriptosave$5ona$125calculator.
ThisfindingcThinchsupportsthenotionoftopicalorganizationofaccounts,sincethetwo
versionsareidenticalbothintermsofaminimalandacomprehensiveaccount.
The significance of topical accounts for consumer behavior is confirmed by the
observationthatthestandarddeviationofthepricesthatdifferentstoresinacityquotefor
thesameproductisroughlyproportionaltotheaveragepriceofthatproduct(Pratt,Wise,
and Zeckhauser 1979). Since the dispersion of prices is surely controlled by shoppers’
effortstofindthebestbuy,theseresultssuggestthatconsumershardlyexertmoreeffortto
save$15ona$150purchasethantosave$5ona$50purchase.
Thetopicalorganizationofmentalaccountsleadspeopletoevaluategainsandlosses
inrelativeratherthaninabsoluteterms,resultinginlargevariationsintherateatwhich
moneyisexchangedforotherthings,suchasthenumberofphonecallsmadetofinda
goodbuyorthewillingnesstodrivealongdistancetogetone.Mostconsumerswillfind
iteasiertobuyacarstereosystemoraPersianrug,respectively,inthecontextofbuyinga
carorahousethanseparately.Theseobservations,ofcourse,runcountertothestandard
rationaltheoryofconsumerbehavior,whichassumesinvarianceanddoesnotrecognize
theeffectsofmentalaccounting.
Thefollowingproblemsillustrateanotherexampleofmentalaccountinginwhichthe
postingofacosttoanaccountiscontrolledbytopicalorganization:
Problem 8 (N= 200): Imagine that you have decided to see a play and paid the
admission price of $10 per ticket. As you enter the theater, you discover that you
havelosttheticket.Theseatwasnotmarked,andtheticketcannotberecovered.
Wouldyoupay$10foranotherticket?
Yes(46%)No(54%)
Problem9(N=183):Imaginethatyouhavedecidedtoseeaplaywhereadmissionis
$10perticket.Asyouenterthetheater,youdiscoverthatyouhavelosta$10bill.
Wouldyoustillpay$10foraticketfortheplay?
Yes(88%)No(12%)
Thedifferencebetweentheresponsestothetwoproblemsisintriguing.Whyaresomany
peopleunwillingtospend$10afterhavinglostaticket,iftheywouldreadilyspendthat
sumafterlosinganequivalentamountofcash?Weattributethedifferencetothetopical
organizationofmentalaccounts.Goingtothetheaterisnormallyviewedasatransaction
inwhichthecostoftheticketisexchangedfortheexperienceofseeingtheplay.Buyinga
second ticket increases the cost of seeing the play to a level that many respondents
apparentlyfindunacceptable.Incontrast,thelossofthecashisnotpostedtotheaccount
of the play, and it affects the purchase of a ticket only by making the individual feel
slightlylessaffluent.
An interesting effect was observed when the two versions of the problem were
presented to the same subjects. The willingness to replace a lost ticket increased
significantlywhenthatproblemfollowedthelost-cashversion.Incontrast,thewillingness
to buy a ticket after losing cash was not affected by prior presentation of the other
problem. The juxtaposition of the two problems apparent clemosition ly enabled the
subjectstorealizethatitmakessensetothinkofthelostticketaslostcash,butnotvice
versa.
The normative status of the effects of mental accounting is questionable. Unlike
earlierexamples, suchas thepublic healthproblem, inwhich thetwo versionsdiffered
only in form, it can be argued that the alternative versions of the calculator and ticket
problemsdifferalsoinsubstance.Inparticular,itmaybemorepleasurabletosave$5ona
$15purchasethanonalargerpurchase,anditmaybemoreannoyingtopaytwiceforthe
sameticketthantolose$10incash.Regret,frustration,andself-satisfactioncanalsobe
affectedbyframing(KahnemanandTversky1982).Ifsuchsecondaryconsequencesare
considered legitimate, then the observed preferences do not violate the criterion of
invarianceandcannotreadilyberuledoutasinconsistentorerroneous.Ontheotherhand,
secondaryconsequencesmaychangeuponreflection.Thesatisfactionofsaving$5ona
$15 item can be marred if the consumer discovers that she would not have exerted the
sameefforttosave$10ona$200purchase.Wedonotwishtorecommendthatanytwo
decision problems that have the same primary consequences should be resolved in the
same way. We propose, however, that systematic examination of alternative framings
offersausefulreflectivedevicethatcanhelpdecisionmakersassessthevaluesthatshould
beattachedtotheprimaryandsecondaryconsequencesoftheirchoices.
LossesandCosts
Manydecisionproblemstaketheformofachoicebetweenretainingthestatusquoand
acceptinganalternativetoit,whichisadvantageousinsomerespectsanddisadvantageous
inothers.Theanalysisofvaluethatwasappliedearliertounidimensionalriskyprospects
canbeextendedtothiscasebyassumingthatthestatusquodefinesthereferencelevelfor
all attributes. The advantages of alternative options will then be evaluated as gains and
theirdisadvantagesaslosses.Becauselossesloomlargerthangains,thedecisionmaker
willbebiasedinfavorofretainingthestatusquo.
Thaler (1980) coined the term “endowment effect” to describe the reluctance of
peopletopartfromassetsthatbelongtotheirendowment.Whenitismorepainfultogive
upanassetthanitispleasurabletoobtainit,buyingpriceswillbesignificantlylowerthan
sellingprices.Thatis,thehighestpricethatanindividualwillpaytoacquireanassetwill
besmallerthantheminimalcompensationthatwouldinducethesameindividualtogive
upthatasset,onceacquired.Thalerdiscussedsomeexamplesoftheendowmenteffectin
the behavior of consumers and entrepreneurs. Several studies have reported substantial
discrepanciesbetweenbuyingandsellingpricesinbothhypotheticalandrealtransactions
(Gregory 1983; Hammack and Brown 1974; Knetsch and Sinden 1984). These results
have been presented as challenges to standard economic theory, in which buying and
sellingpricescoincideexceptfortransactioncostsandeffectsofwealth.Wealsoobserved
reluctancetotradeinastudyofchoicesbetweenhypotheticaljobsthatdifferedinweekly
salary(S) and in the temperature (T) of the workplace. Our respondents were asked to
imaginethattheyheldaparticularposition(S1,T1)andwereofferedtheoptionofmoving
toadifferentposition(S2,T2),whichwasbetterinonerespectandworseinanother.We
foundthatmostsubjectswhowereassignedto(S1,T1)didnotwishtomoveto(S2,T2),
andc2<thatmostsubjectswhowereassignedtothelatterpositiondidnotwishtomove
totheformer.Evidently,thesamedifferenceinpayorinworkingconditionsloomslarger
asadisadvantagethanasanadvantage.
In general, loss aversion favors stability over change. Imagine two hedonically
identicaltwinswhofindtwoalternativeenvironmentsequallyattractive.Imaginefurther
thatbyforceofcircumstancethetwinsareseparatedandplacedinthetwoenvironments.
Assoonastheyadopttheirnewstatesasreferencepointsandevaluatetheadvantagesand
disadvantages of each others environments accordingly, the twins will no longer be
indifferentbetweenthetwostates,andbothwillprefertostaywheretheyhappentobe.
Thus, the instability of preferences produces a preference for stability. In addition to
favoringstabilityoverchange,thecombinationofadaptationandlossaversionprovides
limited protection against regret and envy by reducing the attractiveness of foregone
alternativesandofothers’endowments.
Lossaversionandtheconsequentendowmenteffectareunlikelytoplayasignificant
role in routine economic exchanges. The owner of a store, for example, does not
experience money paid to suppliers as losses and money received from customers as
gains.Instead,themerchantaddscostsandrevenuesoversomeperiodoftimeandonly
evaluates the balance. Matching debits and credits are effectively canceled prior to
evaluation. Payments made by consumers are also not evaluated as losses but as
alternative purchases. In accord with standard economic analysis, money is naturally
viewedasaproxyforthegoodsandservicesthatitcouldbuy.Thismodeofevaluationis
madeexplicitwhenanindividualhasinmindaparticularalternative,suchas,“Icaneither
buy a new camera or a new tent.” In this analysis, a person will buy a camera if its
subjectivevalueexceedsthevalueofretainingthemoneyitwouldcost.
Therearecasesinwhichadisadvantagecanbeframedeitherasacostorasaloss.In
particular,thepurchaseofinsurancecanalsobeframedasachoicebetweenasureloss
andtheriskofagreaterloss.Insuchcasesthecost-lossdiscrepancycanleadtofailuresof
invariance. Consider, for example, the choice between a sure loss of $50 and a 25%
chancetolose$200.Slovic,Fischhoff,andLichtenstein(1982)reportedthat80%oftheir
subjectsexpressedarisk-seekingpreferenceforthegambleoverthesureloss.However,
only35%ofsubjectsrefusedtopay$50forinsuranceagainsta25%riskoflosing$200.
SimilarresultswerealsoreportedbySchoemakerandKunreuther(1979)andbyHershey
andSchoemaker(1980).Wesuggestthatthesameamountofmoneythatwasframedasan
uncompensated loss in the first problem was framed as the cost of protection in the
second.Themodalpreferencewasreversedinthetwoproblemsbecauselossesaremore
aversivethancosts.
We have observed a similar effect in the positive domain, as illustrated by the
followingpairofproblems:
Problem10:Wouldyouacceptagamblethatoffersa10%chancetowin$95anda
90%chancetolose$5?
Problem11:Wouldyoupay$5toparticipateinalotterythatoffersa10%chanceto
win$100anda90%chancetowinnothing?
A total of 132 undergraduates answered the two questions, which were separated by a
short filler problem. The order of the questions was reversed for half the respondents.
Although it is easily confirmed that the two problems offer objecti coffler problevely
identical options, 55 of the respondents expressed different preferences in the two
versions.Amongthem,42rejectedthegambleinProblem10butacceptedtheequivalent
lotteryin Problem11.Theeffectivenessofthisseeminglyinconsequentialmanipulation
illustratesboththecost-lossdiscrepancyandthepowerofframing.Thinkingofthe$5asa
paymentmakestheventuremoreacceptablethanthinkingofthesameamountasaloss.
Theprecedinganalysisimpliesthatanindividual’ssubjectivestatecanbeimproved
by framing negative outcomes as costs rather than as losses. The possibility of such
psychological manipulations may explain a paradoxical form of behavior that could be
labeledthedead-losseffect.Thaler(1980)discussedtheexampleofamanwhodevelops
tenniselbowsoonafterpayingthemembershipfeeinatennisclubandcontinuestoplay
inagonytoavoidwastinghisinvestment.Assumingthattheindividualwouldnotplayif
he had not paid the membership fee, the question arises: How can playing in agony
improvetheindividual’slot?Playinginpain,wesuggest,maintainstheevaluationofthe
membershipfeeasacost.Iftheindividualweretostopplaying,hewouldbeforcedto
recognizethefeeasadeadloss,whichmaybemoreaversivethanplayinginpain.
ConcludingRemarks
Theconceptsofutilityandvaluearecommonlyusedintwodistinctsenses:(a)experience
value,thedegreeofpleasureorpain,satisfactionoranguishintheactualexperienceofan
outcome;and(b)decisionvalue,thecontributionofananticipatedoutcometotheoverall
attractivenessoraversivenessofanoptioninachoice.Thedistinctionisrarelyexplicitin
decisiontheorybecauseitistacitlyassumedthatdecisionvaluesandexperiencevalues
coincide.Thisassumptionispartoftheconceptionofanidealizeddecisionmakerwhois
abletopredictfutureexperienceswithperfectaccuracyandevaluateoptionsaccordingly.
For ordinary decision makers, however, the correspondence of decision values between
experiencevaluesisfarfromperfect(March1978).Somefactorsthataffectexperience
arenoteasilyanticipated,andsomefactorsthataffectdecisionsdonothaveacomparable
impactontheexperienceofoutcomes.
In contrast to the large amount of research on decision making, there has been
relativelylittlesystematicexplorationofthepsychophysicsthatrelatehedonicexperience
toobjectivestates.Themostbasicproblemofhedonicpsychophysicsisthedetermination
ofthelevelofadaptationoraspirationthatseparatespositivefromnegativeoutcomes.The
hedonic reference point is largely determined by the objective status quo, but it is also
affected by expectations and social comparisons. An objective improvement can be
experienced as a loss, for example, when an employee receives a smaller raise than
everyoneelseintheoffice.Theexperienceofpleasureorpainassociatedwithachangeof
state is also critically dependent on the dynamics of hedonic adaptation. Brickman and
Campbell’s(1971) concept ofthehedonictreadmillsuggeststheradicalhypothesisthat
rapidadaptationwillcausetheeffectsofanyobjectiveimprovementtobeshort-lived.The
complexityandsubtletyofhedonicexperiencemakeitdifficultforthedecisionmakerto
anticipatetheactualexperiencethatoutcomeswillproduce.Manyapersonwhoordereda
mealwhenravenouslyhungryhasadmittedtoabigmistakewhenthefifthcoursearrived
onthetable.Thecommonmismatchofdecisionvaluesandexperiencevaluesintroduces
anadditionalelementofuncertaintyinmanydecisionproblems.
Theprevalenceofframingeffectsandviolationsofinvariancefurthercomplicatesthe
relati ces maker won between decision values and experience values. The framing of
outcomesofteninducesdecisionvaluesthathavenocounterpartinactualexperience.For
example,the framingof outcomes oftherapies forlung cancer interms of mortality or
survivalisunlikelytoaffectexperience,althoughitcanhaveapronouncedinfluenceon
choice. In other cases, however, the framing of decisions affects not only decision but
experienceaswell.Forexample,theframingofanexpenditureasanuncompensatedloss
orasthepriceofinsurancecanprobablyinfluencetheexperienceofthatoutcome.Insuch
cases, the evaluation of outcomes in the context of decisions not only anticipates
experiencebutalsomoldsit.
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AspirationLevelEffectsinRiskyChoiceBehavior.”ManagementScience26:1039–
60.
Pratt,J.W.,D.Wise,andR.Zeckhauser.1979.“PriceDifferencesinAlmostCompetitive
Markets.”QuarterlyJournalofEconomics93:189–211.
Savage,L.J.1954.TheFoundationofStatistics.NewYork:Wiley.
Schlaifer, R. 1959. Probability and Statistics for Business Decisions. New York:
McGraw-Hill.
Schoemaker,P.J.H.,andH.C.Kunreuther.1979.“AnExperimentalStudyofInsurance
Decisions.”JournalofRiskandInsurance46:603–18.
Slovic, P., B. Fischhoff, and S. Lichtenstein. 1982. “Response Mode, Framing, and
InformationProcessing Effects in Risk Assessment.” In New Directions for
Methodology of Social andBehavioral Science: Question Framing and Response
Consistency,ed.R.Hogarth.SanFrancisco:Jossey-Bass,21–36.
Thaler,R.1980.“TowardaPositiveTheoryofConsumerChoice.”JournalofEconomic
BehaviorandOrganization1:39–60.
———. 1985. “Using Mental Accounting in a Theory of Consumer Behavior.”
MarketingScience4:199–214.
Tversky, A. 1977. “On the Elicitation of Preferences: Descriptive and Prescriptive
Considerations.”InConflictingObjectivesinDecisions,ed.D.Bell,R.L. Kenney,
andH.Raiffa.NewYork:Wiley,209–22.
Tversky,A.,andD.Kahneman.1981.“TheFramingofDecisionsandthePsychologyof
Choice.”Science211:453–58.
vonNeumann,J.,andO.Morgenstern.1947.TheoryofGamesandEconomicBehavior,
2nded.Princeton:PrincetonUniversityPress.
P
AlsobyDanielKahneman
InternationalDifferencesinWell-Bf,aisan
(writtenwithEdDienerandJohnF.Helliwell)
HeuristicsandBiases:ThePsychologyofIntuitiveJudgment
(editedwithThomasGilovichandDaleGriffin)
Choices,Values,andFrames(editedwithAmosTversky)
Well-Being:TheFoundationsofHedonicPsychology
(editedwithEdwardDienerandNorbertSchwartz)
JudgmentUnderUncertainty:HeuristicsandBiases
(editedwithPaulSlovicandAmosTversky)
AttentionandEffort
P
Acknowledgments
Iamfortunatetohavemanyfriendsandnoshameaboutaskingforhelp.Everyoneofmy
friendshasbeenapproached,someofthemmanytimes,withrequestsforinformationor
editorialsuggestions.Iapologizefornotlistingthemall.Afewindividualsplayedamajor
roleinmakingthebookhappen.MythanksgofirsttoJasonZweig,whourgedmeintothe
projectandpatientlytriedtoworkwithmeuntilitbecamecleartobothofusthatIam
impossibletoworkwith.Throughout,hehasbeengenerouswithhiseditorialadviceand
enviable erudition, and sentences that he suggested dot the book. Roger Lewin turned
transcriptsofasetoflecturesintochapterdrafts.MaryHimmelsteinprovidedvaluable
assistancethroughout.JohnBrockmanbeganasanagentandbecameatrustedfriend.Ran
Hassinprovidedadviceandencouragementwhenitwasmostneeded.Inthefinalstages
ofalongjourneyIhadtheindispensablehelpofEricChinski,myeditoratFarrar,Straus
and Giroux. He knew the book better than I did and the work became an enjoyable
collaboration—I had not imagined that an editor could do as much as Eric did. My
daughter, Lenore Shoham, rallied round to help me through the hectic final months,
providingwisdom,asharpcriticaleye,andmanyofthesentencesinthe“Speakingof”
sections.Mywife,AnneTreisman,wentthroughalotanddidalot—Iwouldhavegiven
uplongagowithouthersteadysupport,wisdom,andendlesspatience.
P
Notes
Introduction
pronetocollecttoofewobservations:Wehadreadabookthatcriticizedpsychologistsfor
using small samples, but did not explain their choices: Jacob Cohen, Statistical Power
AnalysisfortheBehavioralSciences(Hillsdale,NJ:Erlbaum,1969).
questionaboutwords:Ihaveslightlyalteredtheoriginalwording,whichreferredtoletters
inthefirstandthirdpositionofwords.
negativeviewofthemind:AprominentGermanpsychologisthasbeenourmostpersistent
critic.GerdGigerenzer,“HowtoMakeCognitiveIllusionsDisappear,”EuropeanReview
ofSocialPsychology2(1991):83–115.GerdGigerenzer,“PersonalReflectionsonTheory
andPsychology,”Theory&Psychology20(2010):733–43.DanielKahnemanandAmos
Tversky,“OntheRealityofCognitiveIllusions,”PsychologicalReview103(1996):582–
91.
offeredplausiblealternatives:SomeexamplesfrommanyareValerieF.ReynaandFarrell
J. Lloyd, “Physician Decision-Making and Cardiac Risk: Effects of Knowledge, Risk
Perception,RiskToleranceandFuzzy-Processing,”JournalofExperimentalPsychology:
Applied12(2006):179–95.NicholasEpleyandThomasGilovich,“TheAnchoring-and-
AdjustmentHeuristic,”PsychologicalScience17(2006):311–18.NorbertSchwarzetal.,
“EaseofRetrievalofInformation:AnotherLookattheAvailabilityHeuristic,”Journalof
Personality and Social Psychology 61 (1991): 195–202. Elke U. Weber et al.,
“Asymmetric Discounting in Intertemporal Choice,” Psychological Science 18 (2007):
516–23. George F. Loewenstein et al., “Risk as Feelings,” Psychological Bulletin 127
(2001):267–86.
NobelPrizethatIreceived:TheprizeawardedineconomicsisnamedBankofSweden
PrizeinEconomicSciencesinMemoryofAlfredNobel.Itwasfirstgivenin1969.Some
physicalscientistswerenotpleasedwiththeadditionofaNobelPrizeinsocialscience,
andthedistinctivelabeloftheeconomicsprizewasacompromise.
prolongedpractice:HerbertSimonandhisstudentsatCarnegieMelloninthe1980sset
thefoundationsforourunderstandingofexpertise.Foranexcellentpopularintroduction
to the subject, see Joshua Foer, Moonwalking with Einstein: The Art and Science of
Remembering (New York: Penguin Press, 2011). He presents work that is reviewed in
more technical detail in K. Anders Ericsson et al., eds., The Cambridge Handbook of
ExpertiseandExpertPerformance(NewYork:CambridgeUniversityPress,2006.)
kitchenwasonfire:GaryA.Klein,SourcesofPower(Cambridge,MA:MITPress,1999).
studied chess masters: Herbert Simon was one of the great scholars of the twentieth
century,whosediscoveriesandinventionsrangedfrompoliticalscience(wherehebegan
hiscareer)toeconomics(inwhichhewonaNobelPrize)tocomputerscience(inwhich
hewasapioneer)andtopsychology.
“Thesituation…recognition”:HerbertA.Simon,“WhatIsanExplanationofBehavior?”
PsychologicalScience3(1992):150–61.
affect heuristic: The concept of the affect heuristic was developed by Paul Slovic, a
classmateofAmos’satMichiganandalifelongfriend.
withoutnoticingthesubstitution:.
1:TheCharactersoftheStory
offered many labels: For reviews of the field, see Jonathan St. B. T. Evans and Keith
Frankish,eds.,InTwoMinds:DualProcessesandBeyond(NewYork:OxfordUniversity
Press, 2009); Jonathan St. B. T. Evans, “Dual-Processing Accounts of Reasoning,
Judgment, and Social Cognition,” Annual Review of Psychology 59 (2008): 25 {59
eight=“0%“5–78. Among the pioneers are Seymour Epstein, Jonathan Evans, Steven
Sloman,KeithStanovich,andRichardWest.IborrowthetermsSystem1andSystem2
fromearlywritingsofStanovichandWestthatgreatlyinfluencedmythinking:KeithE.
StanovichandRichardF.West,“IndividualDifferencesinReasoning:Implicationsforthe
RationalityDebate,”BehavioralandBrainSciences23(2000):645–65.
subjectiveexperienceofagency:Thissenseoffreewillissometimesillusory,asshownin
Daniel M. Wegner, The Illusion of Conscious Will (Cambridge, MA: Bradford Books,
2003).
attentionis totally focusedelsewhere:NilliLavie,“Attention,DistractionandCognitive
ControlUnderLoad,”CurrentDirectionsinPsychologicalScience19(2010):143–48.
conflictbetweenthetwosystems:IntheclassicStrooptask,youareshownadisplayof
patchesofdifferentcolors,orofwordsprintedinvariouscolors.Yourtaskistocallout
the names of the colors, ignoring the words. The task is extremely difficult when the
coloredwordsarethemselvesnamesofcolor(e.g.,GREENprintedinred,followedbyY
ELLOWprintedingreen,etc.).
psychopathiccharm:ProfessorHarewrotemetosay,“Yourteacherwasright,”March16,
2011. Robert D. Hare, Without Conscience: The Disturbing World of the Psychopaths
AmongUs(NewYork:GuilfordPress,1999).PaulBabiakandRobertD.Hare,Snakesin
Suits:WhenPsychopathsGotoWork(NewYork:Harper,2007).
littlepeople:Agentswithinthemindarecalledhomunculiandare(quiteproperly)objects
ofprofessionalderision.
spaceinyourworkingmemory:AlanD.Baddeley,“WorkingMemory:LookingBackand
LookingForward,”NatureReviews:Neuroscience4(2003):829–38.AlanD.Baddeley,
YourMemory:AUsersGuide(NewYork:FireflyBooks,2004).
2:AttentionandEffort
Attention and Effort: Much of the material of this chapter draws on my Attention and
Effort (1973). It is available for free download on my website
(www.princeton.edu/~kahneman/docs/attention_and_effort/Attention_hi_quality.pdf). The
mainthemeofthatbookistheideaofalimitedabilitytopayattentionandexertmental
effort. Attention and effort were considered general resources that could be used to
supportmanymentaltasks.Theideaofgeneralcapacityiscontroversial,butithasbeen
extended by other psychologists and neuroscientists, who found support for it in brain
research. See Marcel A. Just and Patricia A. Carpenter, “A Capacity Theory of
Comprehension: Individual Differences in Working Memory,” Psychological Review 99
(1992): 122–49; Marcel A. Just et al., “Neuroindices of Cognitive Workload:
Neuroimaging, Pupillometric and Event-Related Potential Studies of Brain Work,”
Theoretical Issues in Ergonomics Science 4 (2003): 56–88. There is also growing
experimentalevidenceforgeneral-purposeresourcesofattention,asinEvieVergauweet
al.,“DoMentalProcessesShareaDomain-GeneralResource?”PsychologicalScience21
(2010):384–90.Thereisimagingevidencethatthemereanticipationofahigh-efforttask
mobilizesactivityinmanyareasofthebrain,relativetoalow-efforttaskofthesamekind.
CarstenN.Boehler et al.,“Task-Load-Dependent Activation ofDopaminergicMidbrain
AreasintheAbsenceofReward,”JournalofNeuroscience31(2011):4955–61.
pupil of the eye: Eckhard H. Hess, “Attitude and Pupil Size,” Scientific American 212
(1965):46–54.
onthesubject’smind:Thewordsubjectremindssomepeopleofsubjugationandslavery,
and the American Psychological Association enjoins us to use the more democratic
participant. Unfortunately, the politically correct label is a mouthful, which occupies
memoryspaceandslowsthinking.Iwilldomybesttouseparticipantwheneverpossible
butwillswitchtosubjectwhennecessary.
heartrateincreases:DanielKahnemanetal.,“Pupillary,HeartRate,andSkinResistance
ChangesDuringaMentalTask,”JournalofExperimentalPsychology79(1969):164–67.
rapidlyflashingletters:DanielKahneman,JacksonBeatty,andIrwinPollack,“Perceptual
DeficitDuringaMentalTask,”Science15(1967):218–19.Weusedahalfwaymirrorso
thattheobserverssawthelettersdirectlyinfrontofthemwhilefacingthecamera.Ina
control condition, the participants looked at the letter through a narrow aperture, to
preventanyeffectofthechangingpupilsizeontheirvisualacuity.Theirdetectionresults
showedtheinverted-Vpatternobservedwithothersubjects.
Muchliketheelectricitymeter:Attemptingtoperformseveraltasksatoncemayruninto
difficultiesofseveralkinds.Forexample,itisphysicallyimpossibletosaytwodifferent
thingsatexactlythesametime,anditmaybeeasiertocombineanauditoryandavisual
taskthantocombinetwovisualortwoauditorytasks.Prominentpsychologicaltheories
have attempted to attribute all mutual interference between tasks to competition for
separate mechanisms. See Alan D. Baddeley, Working Memory (New York: Oxford
UniversityPress,1986).Withpractice,people’sabilitytomultitaskinspecificwaysmay
improve.However,thewidevarietyofverydifferenttasksthatinterferewitheachother
supportstheexistenceofageneralresourceofattentionoreffortthatisnecessaryinmany
tasks.
Studies of the brain: Michael E. Smith, Linda K. McEvoy, and Alan Gevins,
“NeurophysiologicalIndices of StrategyDevelopment andSkillAcquisition,” Cognitive
BrainResearch7(1999):389–404.AlanGevinsetal.,“High-ResolutionEEGMapping
of Cortical Activation Related to Working Memory: Effects of Task Difficulty, Type of
ProcessingandPractice,”CerebralCortex7(1997):374–85.
lessefforttosolvethesameproblems:Forexample,SylviaK.AhernandJacksonBeatty
showedthatindividualswhoscoredhigherontheSATshowedsmallerpupillarydilations
than low scorers in responding to the same task. “Physiological Signs of Information
ProcessingVarywithIntelligence,”Science205(1979):1289–92.
“law of least effort”: Wouter Kool et {ute979): 1289al., “Decision Making and the
Avoidance of Cognitive Demand,” Journal of Experimental Psychology—General 139
(2010): 665–82. Joseph T. McGuire and Matthew M. Botvinick, “The Impact of
Anticipated Demand on Attention and Behavioral Choice,” in Effortless Attention, ed.
BrianBruya(Cambridge,MA:BradfordBooks,2010),103–20.
balance of benefits and costs: Neuroscientists have identified a region of the brain that
assessestheoverallvalueofanactionwhenitiscompleted.Theeffortthatwasinvested
counts as a cost in this neural computation. Joseph T. McGuire and Matthew M.
Botvinick,“PrefrontalCortex,CognitiveControl,andtheRegistrationofDecisionCosts,”
PNAS107(2010):7922–26.
read distracting words: Bruno Laeng et al., “Pupillary Stroop Effects,” Cognitive
Processing12(2011):13–21.
associate with intelligence: Michael I. Posner and Mary K. Rothbart, “Research on
Attention Networks as a Model for the Integration of Psychological Science,” Annual
ReviewofPsychology58(2007):1–23.JohnDuncanetal.,“ANeuralBasisforGeneral
Intelligence,”Science289(2000):457–60.
undertimepressure:StephenMonsell,“TaskSwitching,”TrendsinCognitiveSciences7
(2003):134–40.
workingmemory:Baddeley,WorkingMemory.
testsofgeneralintelligence:AndrewA.Conway,MichaelJ.Kane,andRandallW.Engle,
“WorkingMemoryCapacityandItsRelationtoGeneralIntelligence,”TrendsinCognitive
Sciences7(2003):547–52.
Israeli Air Force pilots: Daniel Kahneman, Rachel Ben-Ishai, and Michael Lotan,
“RelationofaTestofAttentiontoRoadAccidents,”Journal of Applied Psychology 58
(1973):113–15.DanielGopher,“ASelectiveAttentionTestasaPredictorofSuccessin
FlightTraining,”HumanFactors24(1982):173–83.
3:TheLazyController
“optimal experience”: Mihaly Csikszentmihalyi, Flow: The Psychology of Optimal
Experience(NewYork:Harper,1990).
sweet tooth: Baba Shiv and Alexander Fedorikhin, “Heart and Mind in Conflict: The
InterplayofAffectandCognitioninConsumerDecisionMaking,”JournalofConsumer
Research 26 (1999): 278–92. Malte Friese, Wilhelm Hofmann, and Michaela Wänke,
“When Impulses Take Over: Moderated Predictive Validity of Implicit and Explicit
Attitude Measures in Predicting Food Choice and Consumption Behaviour,” British
JournalofSocialPsychology47(2008):397–419.
cognitively busy: Daniel T. Gilbert, “How Mental Systems Believe,” American
Psychologist 46 (1991): 107–19. C. Neil Macrae and Galen V. Bodenhausen, “Social
Cognition: Thinking Categorically about Others,” Annual Review of Psychology 51
(2000):93–120.
po{“><21;: Sian L. Beilockand ThomasH. Carr, “When High-PoweredPeople Fail:
Working Memory and Choking Under Pressure in Math,” Psychological Science 16
(2005):101–105.
exertionofself-control:MartinS.Haggeretal.,“EgoDepletionandtheStrengthModelof
Self-Control:AMeta-Analysis,”PsychologicalBulletin136(2010):495–525.
resisttheeffectsofegodepletion:MarkMuravenandElisavetaSlessareva,“Mechanisms
of Self-Control Failure: Motivation and Limited Resources,” Personality and Social
Psychology Bulletin 29 (2003): 894–906. Mark Muraven, Dianne M. Tice, and Roy F.
Baumeister,“Self-ControlasaLimitedResource:RegulatoryDepletionPatterns,”Journal
ofPersonalityandSocialPsychology74(1998):774–89.
morethanameremetaphor:MatthewT.Gailliotetal.,“Self-ControlReliesonGlucoseas
aLimitedEnergySource:WillpowerIsMoreThanaMetaphor,”JournalofPersonality
and Social Psychology 92 (2007): 325–36. Matthew T. Gailliot and Roy F. Baumeister,
“ThePhysiologyofWillpower:LinkingBloodGlucosetoSelf-Control,”Personalityand
SocialPsychologyReview11(2007):303–27.
egodepletion:Gailliot,“Self-ControlReliesonGlucoseasaLimitedEnergySource.”
depletioneffectsin judgment: Shai Danziger, Jonathan Levav, and Liora Avnaim-Pesso,
“ExtraneousFactorsinJudicialDecisions,”PNAS108(2011):6889–92.
intuitive—incorrect—answer: Shane Frederick, “Cognitive Reflection and Decision
Making,”JournalofEconomicPerspectives19(2005):25–42.
syllogism as valid: This systematic error is known as the belief bias. Evans, “Dual-
ProcessingAccountsofReasoning,Judgment,andSocialCognition.”
call them more rational: KeithE. Stanovich,Rationality and the Reflective Mind (New
York:OxfordUniversityPress,2011).
cruel dilemma: Walter Mischel and Ebbe B. Ebbesen, “Attention in Delay of
Gratification,”JournalofPersonalityandSocialPsychology16(1970):329–37.
“There were no toys…distress”: Inge-Marie Eigsti et al., “Predicting Cognitive Control
from Preschool to Late Adolescence and Young Adulthood,” Psychological Science 17
(2006):478–84.
higher scores on tests of intelligence: Mischel and Ebbesen, “Attention in Delay of
Gratification.” Walter Mischel, “Processes in Delay of Gratification,” in Advances in
Experimental Social Psychology, Vol. 7, ed. Leonard Berkowitz (San Diego, CA:
AcademicPress,1974),249–92.WalterMischel,YuichiShoda,andMonicaL.Rodriguez,
“Delay of Gratification in Children,” Science 244 (1989): 933–38. Eigsti, “Predicting
CognitiveControlfromPreschooltoLateAdolescence.”
improvementwasmaintained:M.RosarioRued{Rocencaetal.,“Training,Maturation,
andGeneticInfluencesontheDevelopmentofExecutiveAttention,”PNAS 102 (2005):
14931–36.
conventionalmeasuresofintelligence:MaggieE.Toplak,RichardF.West,andKeithE.
Stanovich,“TheCognitiveReflectionTestasaPredictor of Performanceon Heuristics-
and-BiasesTasks,”Memory&Cognition(inpress).
4:TheAssociativeMachine
Associative Machine: Carey K. Morewedge and Daniel Kahneman, “Associative
ProcessesinIntuitiveJudgment,”TrendsinCognitiveSciences14(2010):435–40.
beyondyourcontrol:Toavoidconfusion,Ididnotmentioninthetextthatthepupilalso
dilated. The pupil dilates both during emotional arousal and when arousal accompanies
intellectualeffort.
thinkwithyourbody:PaulaM.Niedenthal,“EmbodyingEmotion,”Science316(2007):
1002–1005.
WASH primes SOAP: The image is drawn from the working of a pump. The first few
draws on a pump do not bring up any liquid, but they enable subsequent draws to be
effective.
“finds he it yellow instantly”: John A. Bargh, Mark Chen, and Lara Burrows,
“Automaticity of Social Behavior: Direct Effects of Trait Construct and Stereotype
ActivationonAction,”JournalofPersonalityandSocialPsychology71(1996):230–44.
words related to old age: Thomas Mussweiler, “Doing Is for Thinking! Stereotype
ActivationbyStereotypicMovements,”PsychologicalScience17(2006):17–21.
The Far Side: Fritz Strack, Leonard L. Martin, and Sabine Stepper, “Inhibiting and
FacilitatingConditionsoftheHumanSmile:ANonobtrusiveTestoftheFacialFeedback
Hypothesis,”JournalofPersonalityandSocialPsychology54(1988):768–77.
upsettingpictures:UlfDimberg,MonikaThunberg,andSaraGrunedal,“FacialReactions
to Emotional Stimuli: Automatically Controlled Emotional Responses,” Cognition and
Emotion16(2002):449–71.
listen to messages: Gary L. Wells and Richard E. Petty, “The Effects of Overt Head
Movementson Persuasion:Compatibilityand IncompatibilityofResponses,” Basicand
AppliedSocialPsychology1(1980):219–30.
increasethefundingofschools:JonahBerger,MarcMeredith,andS.ChristianWheeler,
“Contextual Priming: Where People Vote Affects How They Vote,” PNAS 105 (2008):
8846–49.
Reminders of money: Kathleen D. Vohs, “The Psychological Consequences of Money,”
Science314(2006):1154–56.
appeal of authoritarian ideas: Jeff Greenberg et al., “Evidence for Terror Management
Theory II: The Effect of Mortality Salience on Reactions to Those Who Threaten or
BolstertheCulturalWorldview,”JournalofPersonalityandSocialPsychology{gy
“Lady Macbeth effect”: Chen-Bo Zhong and Katie Liljenquist, “Washing Away Your
Sins:ThreatenedMoralityandPhysicalCleansing,”Science313(2006):1451–52.
preferredmouthwashoversoap:SpikeLeeandNorbertSchwarz,“DirtyHandsandDirty
Mouths: Embodiment of the Moral-Purity Metaphor Is Specific to the Motor Modality
InvolvedinMoralTransgression,”PsychologicalScience21(2010):1423–25.
at a British university: Melissa Bateson, Daniel Nettle, and Gilbert Roberts, “Cues of
BeingWatchedEnhanceCooperationinaReal-WorldSetting,”BiologyLetters2(2006):
412–14.
introducedtothatstranger:TimothyWilson’sStrangerstoOurselves(Cambridge, MA:
BelknapPress,2002) presentsa conceptofan“adaptiveunconscious”thatissimilarto
System1.
5:CognitiveEase
“Easy”and“Strained”:Thetechnicaltermforcognitiveeaseisfluency.
diverse inputs and outputs: Adam L. Alter and Daniel M. Oppenheimer, “Uniting the
TribesofFluencytoFormaMetacognitiveNation,”PersonalityandSocialPsychology
Review13(2009):219–35.
“Becoming Famous Overnight”: Larry L. Jacoby, Colleen Kelley, Judith Brown, and
Jennifer Jasechko, “Becoming Famous Overnight: Limits on the Ability to Avoid
Unconscious Influences of the Past,” Journal of Personality and Social Psychology 56
(1989):326–38.
nicely stated the problem: Bruce W. A. Whittlesea, Larry L. Jacoby, and Krista Girard,
“Illusions of Immediate Memory: Evidence of an Attributional Basis for Feelings of
FamiliarityandPerceptualQuality,”Journal of Memory and Language29(1990):716–
32.
The impression of familiarity: Normally, when you meet a friend you can immediately
placeandnamehim;youoftenknowwhereyoumethimlast,whathewaswearing,and
whatyousaidtoeachother.Thefeelingoffamiliaritybecomesrelevantonlywhensuch
specificmemoriesarenotavailable.Itisafallback.Althoughitsreliabilityisimperfect,
the fallback is much better than nothing. It is the sense of familiarity that protects you
fromtheembarrassmentofbeing(andacting)astonishedwhenyouaregreetedasanold
friendbysomeonewhoonlylooksvaguelyfamiliar.
“body temperature of a chicken”: Ian Begg, Victoria Armour, and Thérèse Kerr, “On
Believing What We Remember,” Canadian Journal of Behavioural Science 17 (1985):
199–214.
low credibility: Daniel M. Oppenheimer, “Consequences of Erudite Vernacular Utilized
Irrespective of Necessity: Problems with Using Long Words Needlessly,” Applied
CognitivePsychology20(2006):139–56.
whentheyrhymed:MatthewS.McGloneandJessicaTofighbakhsh,“BirdsofaFeather
FlockConjointly(?):RhymeasReas{RhyPsychologicalScience11(2000):424–28.
fictitiousTurkishcompanies:AnujK.ShahandDanielM.Oppenheimer,“EasyDoesIt:
The Role of Fluency in Cue Weighting,” Judgment and Decision Making Journal 2
(2007):371–79.
engagedandanalyticmode:AdamL.Alter,DanielM.Oppenheimer,NicholasEpley,and
Rebecca Eyre, “Overcoming Intuition: Metacognitive Difficulty Activates Analytic
Reasoning,”JournalofExperimentalPsychology—General136(2007):569–76.
picturesofobjects:PiotrWinkielmanandJohnT.Cacioppo,“MindatEasePutsaSmile
ontheFace:PsychophysiologicalEvidenceThatProcessingFacilitationIncreasesPositive
Affect,”JournalofPersonalityandSocialPsychology81(2001):989–1000.
small advantage: Adam L. Alter and Daniel M. Oppenheimer, “Predicting Short-Term
StockFluctuationsbyUsingProcessingFluency,”PNAS103(2006).MichaelJ.Cooper,
OrlinDimitrov,andP.RaghavendraRau,“ARose.combyAnyOtherName,”Journalof
Finance56(2001):2371–88.
clunky labels: Pascal Pensa, “Nomen Est Omen: How Company Names Influence
Shortand Long-Run Stock Market Performance,” Social Science Research Network
WorkingPaper,September2006.
mereexposureeffect:RobertB.Zajonc,“AttitudinalEffectsofMereExposure,”Journal
ofPersonalityandSocialPsychology9(1968):1–27.
favoriteexperiments:RobertB.ZajoncandD.W.Rajecki,“ExposureandAffect:AField
Experiment,”PsychonomicScience17(1969):216–17.
never consciously sees: Jennifer L. Monahan, Sheila T. Murphy, and Robert B. Zajonc,
“Subliminal Mere Exposure: Specific, General, and Diffuse Effects,” Psychological
Science11(2000):462–66.
inhabitingtheshell:D.W.Rajecki,“EffectsofPrenatalExposuretoAuditoryorVisual
StimulationonPostnatalDistressVocalizationsinChicks,”BehavioralBiology11(1974):
525–36.
“Theconsequences…socialstability”:RobertB.Zajonc,“MereExposure:AGatewayto
theSubliminal,”CurrentDirectionsinPsychologicalScience10(2001):227.
triadofwords:AnnetteBolte,ThomasGoschke,andJuliusKuhl,“EmotionandIntuition:
EffectsofPositiveandNegativeMoodonImplicitJudgments of SemanticCoherence,”
PsychologicalScience14(2003):416–21.
association is retrieved: The analysis excludes all cases in which the subject actually
foundthecorrectsolution.Itshowsthatevensubjectswhowillultimatelyfailtofinda
commonassociationhavesomeideaofwhetherthereisonetobefound.
increase cognitive ease: Sascha Topolinski and Fritz Strack, “The Architecture of
Intuition: Fluency and Affect Determine {ectition Intuitive Judgments of Semantic and
Visual Coherence and Judgments of Grammaticality in Artificial Grammar Learning,”
JournalofExperimentalPsychology—General138(2009):39–63.
doubledaccuracy:Bolte,Goschke,andKuhl,“EmotionandIntuition.”
formacluster:BarbaraFredrickson,Positivity:GroundbreakingResearchRevealsHowto
Embrace the Hidden Strength of Positive Emotions, Overcome Negativity, and Thrive
(NewYork:RandomHouse,2009).JosephP.ForgasandRebekahEast,“OnBeingHappy
and Gullible: Mood Effects on Skepticism and the Detection of Deception,” Journalof
ExperimentalSocialPsychology44(2008):1362–67.
smiling reaction: Sascha Topolinski et al., “The Face of Fluency: Semantic Coherence
Automatically Elicits a Specific Pattern of Facial Muscle Reactions,” Cognition and
Emotion23(2009):260–71.
“previousresearch…individuals”:SaschaTopolinskiandFritz Strack, “The Analysisof
Intuition:ProcessingFluencyandAffectinJudgmentsofSemanticCoherence,”Cognition
andEmotion23(2009):1465–1503.
6:Norms,Surprises,andCauses
Anobserver:DanielKahnemanandDaleT.Miller,“NormTheory:ComparingRealityto
ItsAlternatives,”PsychologicalReview93(1986):136–53.
“tattooonmyback”:JosJ.A.VanBerkum,“UnderstandingSentencesinContext:What
BrainWavesCanTellUs,”CurrentDirectionsinPsychologicalScience17(2008):376–
80.
thewordpickpocket:RanR.Hassin,JohnA.Bargh,andJamesS.Uleman,“Spontaneous
CausalInferences,”JournalofExperimentalSocialPsychology38(2002):515–22.
indicatesurprise:AlbertMichotte,ThePerceptionofCausality(Andover,MA:Methuen,
1963). Alan M. Leslie and Stephanie Keeble, “Do Six-Month-Old Infants Perceive
Causality?”Cognition25(1987):265–88.
explosive finale: Fritz Heider and Mary-Ann Simmel, “An Experimental Study of
ApparentBehavior,”AmericanJournalofPsychology13(1944):243–59.
identify bullies and victims: Leslie and Keeble, “Do Six-Month-Old Infants Perceive
Causality?”
aswedie:PaulBloom,“IsGodanAccident?”Atlantic,December2005.
7:AMachineforJumpingtoConclusions
elegant experiment: Daniel T. Gilbert, Douglas S. Krull, and Patrick S. Malone,
“Unbelieving the Unbelievable: Some Problems in the Rejection of False Information,”
JournalofPersonalityandSocialPsychology59(1990):601–13.
descriptionsoftwopeople:SolomonE.Asch,“Forming{#823.
ImpressionsofPersonality,”JournalofAbnormalandSocialPsychology41(1946):258–
90.
allsixadjectives:Ibid.
Wisdom of Crowds: James Surowiecki, The Wisdom of Crowds (New York: Anchor
Books,2005).
one-sided evidence: Lyle A. Brenner, Derek J. Koehler, and Amos Tversky, “On the
Evaluation of One-Sided Evidence,” Journal of Behavioral Decision Making 9 (1996):
59–70.
8:HowJudgmentsHappen
biological roots: Alexander Todorov, Sean G. Baron, and Nikolaas N. Oosterhof,
“Evaluating Face Trustworthiness: A Model-Based Approach,” Social Cognitive and
AffectiveNeuroscience3(2008):119–27.
friendlyorhostile:AlexanderTodorov,ChrisP.Said,AndrewD.Engell,andNikolaasN.
Oosterhof, “Understanding Evaluation of Faces on Social Dimensions,” Trends in
CognitiveSciences12(2008):455–60.
may spell trouble: Alexander Todorov, Manish Pakrashi, and Nikolaas N. Oosterhof,
“EvaluatingFacesonTrustworthinessAfterMinimalTimeExposure,”Social Cognition
27(2009):813–33.
Australia, Germany, and Mexico: Alexander Todorov et al., “Inference of Competence
fromFacesPredictElectionOutcomes,”Science308(2005):1623–26.CharlesC.Ballew
andAlexanderTodorov,“PredictingPoliticalElectionsfromRapidandUnreflectiveFace
Judgments,”PNAS104(2007):17948–53.ChristopherY.OlivolaandAlexanderTodorov,
“Electedin100Milliseconds:Appearance-BasedTraitInferencesandVoting,”Journalof
NonverbalBehavior34(2010):83–110.
watchlesstelevision:GabrielLenzandChappellLawson,“LookingthePart:Television
Leads Less Informed Citizens to Vote Based on Candidates’ Appearance,” American
JournalofPoliticalScience(forthcoming).
absenceofaspecifictaskset:AmosTverskyandDanielKahneman,“ExtensionalVersus
Intuitive Reasoning: The Conjunction Fallacy in Probability Judgment,” Psychological
Review90(1983):293–315.
ExxonValdez:WilliamH.Desvousgesetal.,“MeasuringNaturalResourceDamageswith
Contingent Valuation: Tests of Validity and Reliability,” in Contingent Valuation: A
CriticalAssessment,ed.JerryA.Hausman(Amsterdam:North-Holland,1993),91–159.
sense of injustice: Stanley S. Stevens, Psychophysics: Introduction to Its Perceptual,
Neural,andSocialProspect(NewYork:Wiley,1975).
detected that the words rhymed: Mark S. Seidenberg and Michael K. Tanenhaus,
“Orthographic Effects on Rhyme Monitoring,” Journal of Experimental Psychology—
HumanLearningandMemory5(1979):546–54.
95–96sentencewasliterallytrue:SamGlucksberg,PatriciaGildea,andHowardG.Boo
{How>
JournalofVerbalLearningandVerbalBehavior21(1982):85–98.
9:AnsweringanEasierQuestion
an intuitive answer to it came readily to mind: An alternative approach to judgment
heuristicshasbeenproposedbyGerdGigerenzer,PeterM.Todd,andtheABCResearch
Group,inSimple Heuristics That Make Us Smart (New York: Oxford University Press,
1999).Theydescribe“fastandfrugal”formalproceduressuchas“Takethebest[cue],”
whichundersomecircumstancesgeneratequiteaccuratejudgmentsonthebasisoflittle
information. As Gigerenzer has emphasized, his heuristics are different from those that
AmosandIstudied,andhehasstressedtheiraccuracyratherthanthebiasestowhichthey
inevitablylead.Muchoftheresearchthatsupportsfastandfrugalheuristicusesstatistical
simulationstoshowthattheycouldworkinsomereal-lifesituations,buttheevidencefor
the psychological reality of these heuristics remains thin and contested. The most
memorablediscoveryassociatedwiththisapproachistherecognitionheuristic,illustrated
byanexamplethathasbecomewell-known:asubjectwhoisaskedwhichoftwocitiesis
largerandrecognizesoneofthemshouldguessthattheonesherecognizesislarger.The
recognitionheuristicworksfairlywellifthesubjectknowsthatthecitysherecognizesis
large; if she knows it to be small, however, she will quite reasonably guess that the
unknowncityislarger.Contrarytothetheory,thesubjectsusemorethantherecognition
cue: Daniel M. Oppenheimer, “Not So Fast! (and Not So Frugal!): Rethinking the
RecognitionHeuristic,”Cognition 90 (2003): B1–B9. A weakness of the theory is that,
fromwhatwe know of themind,thereisnoneedforheuristicstobefrugal.Thebrain
processesvastamountsofinformationinparallel,andthemindcanbefastandaccurate
without ignoring information. Furthermore, it has been known since the early days of
researchonchessmastersthatskillneednotconsistoflearningtouselessinformation.
Onthecontrary,skillismoreoftenanabilitytodealwithlargeamountsofinformation
quicklyandefficiently.
best examples of substitution: Fritz Strack, Leonard L. Martin, and Norbert Schwarz,
“PrimingandCommunication:SocialDeterminantsofInformationUseinJudgmentsof
LifeSatisfaction,”EuropeanJournalofSocialPsychology18(1988):429–42.
correlationsbetweenpsychologicalmeasures:Thecorrelationwas.66.
dominates happiness reports: Other substitution topics include marital satisfaction, job
satisfaction,andleisuretimesatisfaction:NorbertSchwarz,FritzStrack,andHans-Peter
Mai, “Assimilation and Contrast Effects in Part-Whole Question Sequences: A
ConversationalLogicAnalysis,”PublicOpinionQuarterly55(1991):3–23.
evaluatetheirhappiness:AtelephonesurveyconductedinGermanyincludedaquestion
aboutgeneralhappiness.Whentheself-reportsofhappinesswerecorrelatedwiththelocal
weatheratthetimeoftheinterview,apronouncedcorrelationwasfound.Moodisknown
to vary with the weather, and substitution explains the effect on reported happiness.
However, another version of the telephone survey yielded a somewhat different result.
These respondents were asked about the current weather before they were asked the
happiness quest {ppiournal ofion. For them, weather had no effect at all on reported
happiness! The explicit priming of weather provided them with an explanation of their
mood,underminingtheconnectionthatwouldnormallybemadebetweencurrentmood
andoverallhappiness.
view of the benefits: Melissa L. Finucane et al., “The Affect Heuristic in Judgments of
RisksandBenefits,”JournalofBehavioralDecisionMaking13(2000):1–17.
10:TheLawofSmallNumbers
“Itisboth…withoutadditives”:HowardWainerandHarrisL.Zwerling,“EvidenceThat
SmallerSchools DoNot Improve StudentAchievement,” Phi Delta Kappan88 (2006):
300–303.TheexamplewasdiscussedbyAndrewGelmanandDeborahNolan,Teaching
Statistics:ABagofTricks(NewYork:OxfordUniversityPress,2002).
50% risk of failing: Jacob Cohen, “The Statistical Power of Abnormal-Social
Psychological Research: A Review,” Journal of Abnormal and Social Psychology 65
(1962):145–53.
“BeliefintheLawofSmallNumbers”:AmosTverskyandDanielKahneman,“Beliefin
theLawofSmallNumbers,”PsychologicalBulletin76(1971):105–10.
“statisticalintuitions…wheneverpossible”:Thecontrastthatwedrewbetweenintuition
andcomputationseems to foreshadow thedistinctionbetweenSystems1and2,butwe
werealongwayfromtheperspectiveofthisbook.Weusedintuitiontocoveranything
butacomputation,anyinformalwaytoreachaconclusion.
German spies: William Feller, Introduction to Probability Theory and Its Applications
(NewYork:Wiley,1950).
randomness in basketball: Thomas Gilovich, Robert Vallone, and Amos Tversky, “The
Hot Hand in Basketball: On the Misperception of Random Sequences,” Cognitive
Psychology17(1985):295–314.
11:Anchors
“‘reasonable’ volume”: Robyn Le Boeuf and Eldar Shafir, “The Long and Short of It:
PhysicalAnchoringEffects,”JournalofBehavioralDecisionMaking19(2006):393–406.
nodtheirhead:NicholasEpleyandThomasGilovich,“PuttingAdjustmentBackinthe
Anchoring and Adjustment Heuristic: Differential Processing of Self-Generated and
Experimenter-ProvidedAnchors,”PsychologicalScience12(2001):391–96.
stay closer to the anchor: Epley and Gilovich, “The Anchoring-and-Adjustment
Heuristic.”
associative coherence: Thomas Mussweiler, “The Use of Category and Exemplar
Knowledge in the Solution of Anchoring Tasks,” Journal of Personality and Social
Psychology78(2000):1038–52.
San Francisco Exploratorium: Karen E. Jacowitz and Daniel Kahneman, “Measures of
AnchoringinEstimationTasks,”Person{pantionalityandSocialPsychologyBulletin21
(1995):1161–66.
substantiallylower:Gregory B.Northcraft and MargaretA. Neale,“Experts, Amateurs,
and Real Estate: An Anchoring-and-Adjustment Perspective on Property Pricing
Decisions,”Organizational Behavior and Human Decision Processes 39 (1987): 84–97.
The high anchor was 12% above the listed price, the low anchor was 12% below that
price.
rolledapairofdice:BirteEnglich,ThomasMussweiler,andFritzStrack,“PlayingDice
with Criminal Sentences: The Influence of Irrelevant Anchors on Experts’ Judicial
DecisionMaking,”PersonalityandSocialPsychologyBulletin32(2006):188–200.
NOLIMITPERPERSON:BrianWansink,RobertJ.Kent,andStephenJ.Hoch,“AnAnchoring
andAdjustmentModelofPurchaseQuantityDecisions,”JournalofMarketingResearch
35(1998):71–81.
resisttheanchoringeffect:AdamD.GalinskyandThomasMussweiler,“FirstOffersas
Anchors:TheRoleofPerspective-TakingandNegotiatorFocus,”JournalofPersonality
andSocialPsychology81(2001):657–69.
otherwise be much smaller: Greg Pogarsky and Linda Babcock, “Damage Caps,
MotivatedAnchoring,andBargainingImpasse,”JournalofLegalStudies30(2001):143–
59.
amount of damages: For an experimental demonstration, see Chris Guthrie, Jeffrey J.
Rachlinski,andAndrewJ.Wistrich,“JudgingbyHeuristic-CognitiveIllusionsinJudicial
DecisionMaking,”Judicature86(2002):44–50.
12:TheScienceofAvailability
“theeasewithwhich”:AmosTverskyandDanielKahneman,“Availability:AHeuristic
forJudgingFrequencyandProbability,”CognitivePsychology5(1973):207–32.
self-assessed contributions: Michael Ross and Fiore Sicoly, “Egocentric Biases in
Availability and Attribution,” Journal of Personality and Social Psychology 37 (1979):
322–36.
Amajoradvance:Schwarzetal.,“EaseofRetrievalasInformation.”
role of fluency: Sabine Stepper and Fritz Strack, “Proprioceptive Determinants of
EmotionalandNonemotionalFeelings,”JournalofPersonalityandSocialPsychology64
(1993):211–20.
experimentersdreamedup:Forareviewofthisareaofresearch,seeRainerGreifeneder,
HerbertBless,andMichelT.Pham,“WhenDoPeopleRelyonAffectiveandCognitive
FeelingsinJudgment?AReview,”PersonalityandSocialPsychologyReview15(2011):
107–41.
affect their cardiac health: Alexander Rotliman and Norbert Schwarz, “Constructing
Perceptions of Vulnerability: Personal Relevance and the Use of Experimental
InformationinHealthJudgments,”PersonalityandSocialPsychologyBulletin24(1998):
1053–64.
effortful task at the same time: Rainer Greifeneder and Herbert Bless, “Relying on
AccessibleContentVersusAccessibilityExperiences:TheCaseofProcessingCapacity,”
SocialCognition25(2007):853–81.
happyepisodeintheirlife:MarkusRuderandHerbertBless,“MoodandtheRelianceon
theEaseofRetrievalHeuristic,”JournalofPersonalityandSocialPsychology85(2003):
20–32.
low on a depression scale: Rainer Greifeneder and Herbert Bless, “Depression and
RelianceonEase-of-RetrievalExperiences,”European Journal of Social Psychology38
(2008):213–30.
knowledgeablenovices: Chezy Ofir et al., “Memory-Based Store Price Judgments: The
RoleofKnowledgeandShoppingExperience,”JournalofRetailing84(2008):414–23.
trueexperts:EugeneM.Caruso,“UseofExperiencedRetrievalEaseinSelfandSocial
Judgments,”JournalofExperimentalSocialPsychology44(2008):148–55.
faithinintuition:JohannesKellerandHerbertBless,“PredictingFutureAffectiveStates:
HowEaseofRetrievalandFaithinIntuitionModeratetheImpactofActivatedContent,”
EuropeanJournalofSocialPsychology38(2008):1–10.
if they are…powerful: Mario Weick and Ana Guinote, “When Subjective Experiences
Matter:PowerIncreasesRelianceontheEaseofRetrieval,”JournalofPersonalityand
SocialPsychology94(2008):956–70.
13:Availability,Emotion,andRisk
becauseofbraindamage:Damasio’sideaisknownasthe“somaticmarkerhypothesis”
andithasgatheredsubstantialsupport:AntonioR.Damasio,Descartes’Error:Emotion,
Reason, and the Human Brain (New York: Putnam, 1994). Antonio R. Damasio, “The
Somatic Marker Hypothesis and the Possible Functions of the Prefrontal Cortex,”
PhilosophicalTransactions:BiologicalSciences351(1996):141–20.
risksofeachtechnology:Finucaneetal.,“TheAffectHeuristicinJudgmentsofRisksand
Benefits.”PaulSlovic,MelissaFinucane,EllenPeters,andDonaldG.MacGregor,“The
Affect Heuristic,” in Thomas Gilovich, Dale Griffin, and Daniel Kahneman, eds.,
Heuristics and Biases (New York: Cambridge University Press, 2002), 397–420. Paul
Slovic,MelissaFinucane,EllenPeters,andDonaldG.MacGregor,“RiskasAnalysisand
Risk as Feelings: Some Thoughts About Affect, Reason, Risk, and Rationality,” Risk
Analysis 24 (2004): 1–12. Paul Slovic, “Trust, Emotion, Sex, Politics, and Science:
SurveyingtheRisk-AssessmentBattlefield,”RiskAnalysis19(1999):689–701.
British Toxicology Society: Slovic, “Trust, Emotion, Sex, Politics, and Science.” The
technologiesandsubstancesusedinthesestudiesarenotalternativesolutionstothesame
problem.Inrealisticproblems,wherecompetitivesolutionsareconsidered,thecorrelation
between costs and benefits must be negative; the solutions that have {ns problems,the
largestbenefitsarealsothemostcostly.Whetherlaypeopleandevenexpertsmightfailto
recognizethecorrectrelationshipeveninthosecasesisaninterestingquestion.
“wagstherationaldog”:JonathanHaidt,“TheEmotionalDogandItsRationalTail:A
Social Institutionist Approach to Moral Judgment,” Psychological Review 108 (2001):
814–34.
“‘Risk’ does not exist”: Paul Slovic, The Perception of Risk (Sterling, VA: EarthScan,
2000).
availabilitycascade:TimurKuranandCassR.Sunstein,“AvailabilityCascadesandRisk
Regulation,” Stanford Law Review 51 (1999): 683–768. CERCLA, the Comprehensive
EnvironmentalResponse,Compensation,andLiabilityAct,passedin1980.
nothinginbetween:PaulSlovic,whotestifiedfortheapplegrowersintheAlarcase,hasa
ratherdifferentview:“ThescarewastriggeredbytheCBS60Minutesbroadcastthatsaid
4,000childrenwilldieofcancer(noprobabilitiesthere)alongwithfrighteningpicturesof
bald children in a cancer ward—and many more incorrect statements. Also the story
exposed EPAs lack of competence in attending to and evaluating the safety of Alar,
destroying trust in regulatory control. Given this, I think the public’s response was
rational.”(Personalcommunication,May11,2011.)
14:TomW’sSpecialty
“a shy poetry lover”: I borrowed this example from Max H. Bazerman and Don A.
Moore,JudgmentinManagerialDecisionMaking(NewYork:Wiley,2008).
always weighted more: Jonathan St. B. T. Evans, “Heuristic and Analytic Processes in
Reasoning,”BritishJournalofPsychology75(1984):451–68.
theoppositeeffect:NorbertSchwarzetal.,“BaseRates,Representativeness,andtheLogic
ofConversation:TheContextualRelevanceof‘Irrelevant’Information,”SocialCognition
9(1991):67–84.
toldtofrown:Alter,Oppenheimer,Epley,andEyre,“OvercomingIntuition.”
Bayes’srule: The simplest formof Bayes’s rule is inodds form, posterior odds =prior
odds×likelihoodratio,wheretheposterioroddsaretheodds(theratioofprobabilities)
fortwo competinghypotheses.Consider aproblem ofdiagnosis. Your friendhas tested
positiveforaseriousdisease.Thediseaseisrare:only1in600ofthecasessentinfor
testing actually has the disease. The test is fairly accurate. Its likelihood ratio is 25:1,
whichmeansthattheprobabilitythatapersonwhohasthediseasewilltestpositiveis25
timeshigherthantheprobabilityofafalsepositive.Testingpositiveisfrighteningnews,
buttheoddsthatyourfriendhasthediseasehaverisenonlyfrom1/600to25/600,andthe
probabilityis4%.
ForthehypothesisthatTomWisacomputerscientist,theprioroddsthatcorrespond
toabaserateof3%are(.03/.97=.031).Assumingalikelihoodratioof4(thedescription
is4timesaslikelyifTomWisacomputerscientistthanifheisnot),theposteriorodds
are 4 × . 031 = 12.4. From these odds you can { odes as l compute that the posterior
probabilityofTomWbeingacomputerscientistisnow11%(because12.4/112.4=.11).
15:Linda:LessisMore
theroleofheuristics:AmosTverskyandDanielKahneman,“ExtensionalVersusIntuitive
Reasoning: The Conjunction Fallacy in Probability Judgment,” Psychological Review
90(1983),293-315.
“a little homunculus”: Stephen Jay Gould, Bully for Brontosaurus (New York: Norton,
1991).
weakened or explained: See, among others, Ralph Hertwig and Gerd Gigerenzer, “The
‘ConjunctionFallacy’Revisited:HowIntelligentInferencesLookLikeReasoningErrors,”
JournalofBehavioralDecisionMaking12(1999):275–305;RalphHertwig,BjoernBenz,
andStefanKrauss,“TheConjunctionFallacyandtheManyMeaningsofAnd,”Cognition
108(2008):740–53.
settle our differences: Barbara Mellers, Ralph Hertwig, and Daniel Kahneman, “Do
Frequency Representations Eliminate Conjunction Effects? An Exercise in Adversarial
Collaboration,”PsychologicalScience12(2001):269–75.
16:CausesTrumpStatistics
correctansweris41%:ApplyingBayes’sruleinoddsform,theprioroddsaretheodds
fortheBluecabfromthebaserate,andthelikelihoodratioistheratiooftheprobability
ofthewitnesssayingthecabisBlueifitisBlue,dividedbytheprobabilityofthewitness
sayingthecabisBlueifitisGreen:posteriorodds=(.15/.85)×(.80/.20)=.706.Theodds
aretheratiooftheprobabilitythatthecabisBlue,dividedbytheprobabilitythatthecab
isGreen.ToobtaintheprobabilitythatthecabisBlue,wecompute:Probability(Blue)=
.706/1.706=.41.TheprobabilitythatthecabisBlueis41%.
nottoofarfromtheBayesian:AmosTverskyandDanielKahneman,“CausalSchemasin
Judgments Under Uncertainty,” in Progress in Social Psychology, ed. Morris Fishbein
(Hillsdale,NJ:Erlbaum,1980),49–72.
University of Michigan: Richard E. Nisbett and Eugene Borgida, “Attribution and the
PsychologyofPrediction,”JournalofPersonalityandSocialPsychology32(1975):932–
43.
relieved of responsibility: John M. Darley and Bibb Latane, “Bystander Intervention in
Emergencies:DiffusionofResponsibility,”JournalofPersonalityandSocialPsychology
8(1968):377–83.
17:RegressiontotheMean
help of the most brilliant statisticians: Michael Bulmer, Francis Galton: Pioneer of
HeredityandBiometry(Baltimore:JohnsHopkinsUniversityPress,2003).
standard scores: Researchers transform each original score into a standard score by
subtracting the mean and dividing the result by the standard deviation. Standard scores
have a mean of zero and a standard deviation of 1, can be compared across variables
(especially when the statistica {he deviatiol distributions of the original scores are
similar),andhavemanydesirablemathematicalproperties,whichGaltonhadtoworkout
tounderstandthenatureofcorrelationandregression.
correlationbetween parent and child:Thiswillnot be trueinanenvironmentin which
some children are malnourished. Differences in nutrition will become important, the
proportionofsharedfactorswilldiminish,andwithitthecorrelationbetweentheheight
ofparents andthe heightof children(unless the parents of malnourished childrenwere
alsostuntedbyhungerinchildhood).
heightandweight:Thecorrelationwascomputedforaverylargesampleofthepopulation
oftheUnitedStates(theGallup-HealthwaysWell-BeingIndex).
income and education: The correlation appears impressive, but I was surprised to learn
many years ago from the sociologist Christopher Jencks that if everyone had the same
education,theinequalityofincome(measuredbystandarddeviation)wouldbereduced
onlybyabout9%.Therelevantformulaisv(1–r2),whereristhecorrelation.
correlation and regression: This is true when both variables are measured in standard
scores—thatis,whereeachscoreistransformedbyremovingthemeananddividingthe
resultbythestandarddeviation.
confusing mere correlation with causation: Howard Wainer, “The Most Dangerous
Equation,”AmericanScientist95(2007):249–56.
18:TamingIntuitivePredictions
far more moderate: The proof of the standard regression as the optimal solution to the
prediction problem assumes that errors are weighted by the squared deviation from the
correctvalue.Thisistheleast-squarescriterion,whichiscommonlyaccepted.Otherloss
functionsleadtodifferentsolutions.
19:TheIllusionofUnderstanding
narrative fallacy: Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly
Improbable(NewYork:RandomHouse,2007).
oneattributethatisparticularlysignificant:.
throwingtheball:MichaelLewis,Moneyball:TheArtofWinninganUnfairGame(New
York:Norton,2003).
sell their company:SethWeintraub, “Excite PassedUp BuyingGoogle for$750,000 in
1999,”Fortune,September29,2011.
everfeltdifferently:RichardE.NisbettandTimothyD.Wilson,“TellingMoreThanWe
CanKnow:VerbalReportsonMentalProcesses,”PsychologicalReview84(1977):231–
59.
UnitedStatesandtheSovietUnion:BaruchFischhoffandRuthBeyth,“IKnewItWould
Happen:RememberedProbabilitiesofOnceFutureThings,”OrganizationalBehaviorand
HumanPerformance13(1975):1–16.
qualityofadecision:JonathanBaronandJohnC.Hershey,“OutcomeBiasinDecision{s
iiv>Evaluation,”JournalofPersonalityandSocialPsychology54(1988):569–79.
shouldhavehiredthemonitor:KimA.KaminandJeffreyRachlinski,“ExPost?ExAnte:
Determining Liability in Hindsight,” Law and Human Behavior 19 (1995): 89–104.
Jeffrey J. Rachlinski, “A Positive Psychological Theory of Judging in Hindsight,”
UniversityofChicagoLawReview65(1998):571–625.
tidbitofintelligence:JeffreyGoldberg,“LetterfromWashington:Woodwardvs.Tenet,”
NewYorker,May21,2007,35–38.AlsoTimWeiner,LegacyofAshes:TheHistoryofthe
CIA (New York: Doubleday, 2007); “Espionage: Inventing the Dots,” Economist,
November3,2007,100.
reluctancetotakerisks:PhilipE.Tetlock,“Accountability:TheNeglectedSocialContext
ofJudgmentandChoice,”ResearchinOrganizationalBehavior7(1985):297–332.
beforetheircurrentappointment:MarianneBertrandandAntoinetteSchoar,“Managing
withStyle:The EffectofManagers on FirmPolicies,”Quarterly Journal of Economics
118(2003):1169–1208.NickBloomandJohnVanReenen,“MeasuringandExplaining
ManagementPracticesAcrossFirmsandCountries,”QuarterlyJournalofEconomics122
(2007):1351–1408.
“Howoftenwillyoufind…”:IamindebtedtoProfessorJamesH.SteigerofVanderbilt
University, who developed an algorithm that answers this question, under plausible
assumptions. Steigers analysis shows that correlations of .20 and .40 are associated,
respectively,withinversionratesof43%and37%.
hispenetratingbook:TheHaloEffectwaspraisedasoneofthebestbusinessbooksofthe
yearbyboththeFinancialTimesandTheWallStreetJournal:PhilRosenzweig,TheHalo
Effect:…and the Eight Other Business Delusions That Deceive Managers (New York:
Simon&Schuster,2007).SeealsoPaulOlkandPhilRosenzweig,“TheHaloEffectand
theChallengeofManagementInquiry:ADialogBetweenPhilRosenzweigandPaulOlk,”
JournalofManagementInquiry19(2010):48–54.
“a visionary company”: James C. Collins and Jerry I. Porras, Built to Last: Successful
HabitsofVisionaryCompanies(NewYork:Harper,2002).
flipofacoin:In fact,even if you were theCEO yourself,your forecastswould not be
impressivelyreliable;theextensiveresearchoninsidertradingshowsthatexecutivesdo
beatthemarketwhentheytradetheirownstock,butthemarginoftheiroutperformanceis
barely enough to cover the costs of trading. See H. Nejat Seyhun, “The Information
Content of Aggregate Insider Trading,” Journal of Business 61 (1988): 1–24; Josef
Lakonishok and Inmoo Lee, “Are Insider Trades Informative?” Review of Financial
Studies14(2001):79–111;ZahidIqbalandShekarShetty,“AnInvestigationofCausality
Between Insider Transactions and Stock Returns,” Quarterly Review of Economics and
Finance42(2002):41–57.
InSearchofExcellence:Rosenz{lenlatweig,TheHaloEffect.
“Most Admired Companies”: Deniz Anginer, Kenneth L. Fisher, and Meir Statman,
“StocksofAdmiredCompaniesandDespisedOnes,”workingpaper,2007.
regressiontothemean:JasonZweigobservesthatthelackofappreciationforregression
hasdetrimentalimplicationsfortherecruitmentofCEOs.Strugglingfirmstendtoturnto
outsiders,recruitingCEOsfromcompanieswithhighrecentreturns.TheincomingCEO
thengetscredit,atleasttemporarily,forhisnewfirm’ssubsequentimprovement.(Mean-
while, his replacement at his former firm is now struggling, leading the new bosses to
believethattheydefinitelyhired“therightguy.”)AnytimeaCEOjumpsship,thenew
companymustbuyouthisstake(instockandoptions)athisoldfirm,settingabaseline
forfuturecompensationthathasnothingtodowithperformanceatthenewfirm.Tensof
millions of dollars in compensation get awarded for “personal” achievements that are
driven mainly by regression and halo effects (personal communication, December 29,
2009).
20:TheIllusionofValidity
thisstartlingconclusion:BradM.BarberandTerranceOdean,“TradingIsHazardousto
Your Wealth: The Common Stock Investment Performance of Individual Investors,”
JournalofFinance55(2002):773–806.
men acted on their useless ideas: Brad M. Barber and Terrance Odean, “Boys Will Be
Boys: Gender, Overconfidence, and Common Stock Investment,” Quarterly Journal of
Economics116(2006):261–92.
selling“winners”:This“dispositioneffect”isdiscussedfurther.
respondingtonews:BradM.BarberandTerranceOdean,“AllThatGlitters:TheEffectof
Attention and News on the Buying Behavior of Individual and Institutional Investors,”
ReviewofFinancialStudies21(2008):785–818.
wealthfromamateurs:ResearchonstocktradesinTaiwanconcludedthatthetransferof
wealth from individuals to financial institutions amounts to a staggering 2.2% of GDP:
BradM.Barber,Yi-TsungLee,Yu-JaneLiu,andTerranceOdean,“JustHowMuchDo
IndividualInvestorsLosebyTrading?”ReviewofFinancialStudies22(2009):609–32.
underperformtheoverallmarket:JohnC.Bogle,CommonSenseonMutualFunds:New
ImperativesfortheIntelligentInvestor(NewYork:Wiley,2000),213.
persistentdifferences in skill: Mark Grinblatt and Sheridan Titman, “The Persistence of
MutualFundPerformance,”JournalofFinance42(1992):1977–84.EdwinJ.Eltonetal.,
“The Persistence of Risk-Adjusted Mutual Fund Performance,” Journal of Business 52
(1997): 1–33. Edwin Elton et al., “Efficiency With Costly Information: A Re-
interpretation of Evidence from Managed Portfolios,” Review of Financial Studies 6
(1993):1–21.
“In this age of academic hyperspecialization”: Philip E. Tetlock, Expert Political
Judgment:>HowGoodisIt?HowCanWeKnow?(Princeton:PrincetonUniversityPress,
2005),233.
21:Intuitionsvs.Formulas
“There is no controversy”: Paul Meehl, “Causes and Effects of My Disturbing Little
Book,”JournalofPersonalityAssessment50(1986):370–75.
afactorof10ormore:Duringthe1990–1991auctionseason,forexample,thepricein
Londonofacaseof1960ChateauLatouraveraged$464;acaseofthe1961vintage(one
ofthebestever)fetchedanaverageof$5,432.
Experienced radiologists: Paul J. Hoffman, Paul Slovic, and Leonard G. Rorer, “An
Analysis-of-VarianceModelfortheAssessmentofConfiguralCueUtilizationinClinical
Judgment,”PsychologicalBulletin69(1968):338–39.
internal corporate audits: Paul R. Brown, “Independent Auditor Judgment in the
EvaluationofInternalAuditFunctions,”JournalofAccountingResearch21(1983):444–
55.
41 separate studies: James Shanteau, “Psychological Characteristics and Strategies of
ExpertDecisionMakers,”ActaPsychologica68(1988):203–15.
successive food breaks: Danziger, Levav, and Avnaim-Pesso, “Extraneous Factors in
JudicialDecisions.”
lowering validity: Richard A. DeVaul et al., “Medical-School Performance of Initially
RejectedStudents,”JAMA257(1987):47–51.JasonDanaandRobynM.Dawes,“Belief
intheUnstructuredInterview:ThePersistenceofanIllusion,”workingpaper,Department
of Psychology, University of Pennsylvania, 2011. William M. Grove et al., “Clinical
Versus Mechanical Prediction: A Meta-Analysis,” Psychological Assessment 12 (2000):
19–30.
Dawes’s famous article: Robyn M. Dawes, “The Robust Beauty of Improper Linear
ModelsinDecisionMaking,”AmericanPsychologist34(1979):571–82.
notaffectedbyaccidentsofsampling:JasonDanaandRobynM.Dawes,“TheSuperiority
of Simple Alternatives to Regression for Social Science Predictions,” Journal of
EducationalandBehavioralStatistics29(2004):317–31.
Dr.Apgar:VirginiaApgar,“AProposalforaNewMethodofEvaluationoftheNewborn
Infant,”CurrentResearchesinAnesthesiaandAnalgesia32(1953):260–67.Mieczyslaw
Finster and Margaret Wood, “The Apgar Score Has Survived the Test of Time,”
Anesthesiology102(2005):855–57.
virtuesofchecklists:AtulGawande,The Checklist Manifesto: How toGetThingsRight
(NewYork:MetropolitanBooks,2009).
organic fruit: Paul Rozin, “The Meaning of ‘Natural’: Process More Important than
Content,”PsychologicalScience16(2005):652–58.
2{ce
moderated by an arbiter: Mellers, Hertwig, and Kahneman, “Do Frequency
RepresentationsEliminateConjunctionEffects?”
articulatedthisposition:Klein,SourcesofPower.
kouros:TheGettyMuseuminLosAngelesbringsintheworld’sleadingexpertsonGreek
sculpturetoviewakouros—amarblestatueofastridingboy—thatitisabouttobuy.One
after another, the experts react with what one calls “intuitive repulsion”—a powerful
hunchthatthekourosisnot2,500yearsoldbutamodernfake.Noneoftheexpertscan
immediatelysaywhytheythinkthesculptureisaforgery.Theclosestanyofthemcould
come to a rationale is an Italian art historian’s complaint that something—he does not
knowexactly what—“seemedwrong”with thestatue’s fingernails.Afamous American
expertsaidthatthefirstthoughtthatcametohismindwasthewordfresh,andaGreek
expert flatly stated, “Anyone who has ever seen a sculpture coming out of the ground
could tell that that thing has never been in the ground.” The lack of agreement on the
reasonsforthesharedconclusionisstriking,andrathersuspect.
admired as a hero: Simon was one of the towering intellectual figures of the twentieth
century.Hewroteaclassicondecisionmakinginorganizationswhilestillinhistwenties,
andamongmanyotherachievementshewentontobeoneofthefoundersofthefieldof
artificialintelligence,aleaderincognitivescience,aninfluentialstudentoftheprocessof
scientific discovery, a forerunner of behavioral economics and, almost incidentally, a
Nobellaureateineconomics.
“nothinglessthanrecognition”:Simon,“WhatIsanExplanationofBehavior?”DavidG.
Myers,Intuition:ItsPowersandPerils(NewHaven:YaleUniversityPress,2002),56.
“withoutknowinghowheknows”:SeymourEpstein,“DemystifyingIntuition:WhatItIs,
WhatItDoes,HowItDoesIt,”PsychologicalInquiry21(2010):295–312.
10,000hours:Foer,MoonwalkingwithEinstein.
23:TheOutsideView
insideviewandtheoutsideview:Thelabelsareoftenmisunderstood.Numerousauthors
believed that the correct terms were “insider view” and “outsider view,” which are not
evenclosetowhatwehadinmind.
very different answers: Dan Lovallo and Daniel Kahneman, “Timid Choices and Bold
Forecasts:ACognitivePerspectiveonRiskTaking,”ManagementScience39(1993):17–
31. Daniel Kahneman and Dan Lovallo, “Delusions of Success: How Optimism
UnderminesExecutives’Decisions,”HarvardBusinessReview81(2003):56–63.
“Pallid”statisticalinformation:RichardE.NisbettandLeeD.Ross,HumanInference:
Strategies and Shortcomings of Social Judgment (Englewood Cliffs, NJ: Prentice-Hall,
1980).
impersonality of procedures: Fo {i>How Doctors Think (New York: Mariner Books,
2008),6.
planningfallacy:DanielKahnemanandAmosTversky,“IntuitivePrediction:Biasesand
CorrectiveProcedures,”ManagementScience12(1979):313–27.
Scottish Parliament building: Rt. Hon. The Lord Fraser of Carmyllie, “The Holyrood
Inquiry, Final Report,” September 8, 2004,
www.holyroodinquiry.org/FINAL_report/report.htm.
didnotbecomemorereliantonit:BrentFlyvbjerg,MetteK.SkamrisHolm,andSørenL.
Buhl,“How(In)accurateAreDemandForecastsinPublicWorksProjects?”Journalofthe
AmericanPlanningAssociation71(2005):131–46.
surveyofAmericanhomeowners:“2002Costvs.ValueReport,”Remodeling,November
20,2002.
completiontimes: Brent Flyvbjerg, “From Nobel Prize to Project Management: Getting
RisksRight,”ProjectManagementJournal37(2006):5–15.
sunk-costfallacy:HalR.ArkesandCatherineBlumer,“ThePsychologyofSunkCost,”
Organizational Behavior and Human Decision Processes 35 (1985): 124–40. Hal R.
ArkesandPeterAyton,“TheSunkCostandConcordeEffects:AreHumansLessRational
ThanLowerAnimals?”PsychologicalBulletin125(1998):591–600.
24:TheEngineofCapitalism
you already feel fortunate: Miriam A. Mosing et al., “Genetic and Environmental
InfluencesonOptimismandItsRelationshiptoMentalandSelf-RatedHealth:AStudyof
Aging Twins,” Behavior Genetics 39 (2009): 597–604. David Snowdon, Aging with
Grace: Whatthe Nun Study Teaches Us About Leading Longer, Healthier, and More
MeaningfulLives(NewYork:BantamBooks,2001).
brightsideofeverything:ElaineFox,AnnaRidgewell,andChrisAshwin,“Lookingon
the Bright Side: Biased Attention and the Human Serotonin Transporter Gene,”
ProceedingsoftheRoyalSocietyB276(2009):1747–51.
“triumphofhopeoverexperience”:ManjuPuriandDavidT.Robinson,“Optimismand
EconomicChoice,”JournalofFinancialEconomics86(2007):71–99.
more sanguine than midlevel managers: Lowell W. Busenitz and Jay B. Barney,
“Differences Between Entrepreneurs and Managers in Large Organizations: Biases and
HeuristicsinStrategicDecision-Making,”JournalofBusinessVenturing12(1997):9–30.
admirationofothers:Entrepreneurswhohavefailedaresustainedintheirconfidenceby
the probably mistaken belief that they have learned a great deal from the experience.
GavinCassarand Justin Craig,“AnInvestigationof Hindsight BiasinNascentVenture
Activity,”JournalofBusinessVenturing24({>
influenceonthelivesofothers:KeithM.HmieleskiandRobertA.Baron,“Entrepreneurs’
OptimismandNewVenturePerformance:ASocialCognitivePerspective,”Academyof
Management Journal 52 (2009): 473–88. Matthew L. A. Hayward, Dean A. Shepherd,
and Dale Griffin, “A Hubris Theory of Entrepreneurship,” Management Science 52
(2006):160–72.
chance of failing was zero: Arnold C. Cooper, Carolyn Y. Woo, and William C.
Dunkelberg, “Entrepreneurs’ Perceived Chances for Success,” Journal of Business
Venturing3(1988):97–108.
given the lowest grade: Thomas Astebro and Samir Elhedhli, “The Effectiveness of
SimpleDecisionHeuristics:ForecastingCommercialSuccessforEarly-StageVentures,”
ManagementScience52(2006):395–409.
widespread, stubborn, and costly: Thomas Astebro, “The Return to Independent
Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving?”
EconomicJournal113(2003):226–39.
bet small amounts of money: Eleanor F. Williams and Thomas Gilovich, “Do People
ReallyBelieveTheyAreAboveAverage?”JournalofExperimentalSocialPsychology44
(2008):1121–28.
“hubris hypothesis”: Richard Roll, “The Hubris Hypothesis of Corporate Takeovers,”
JournalofBusiness59(1986):197–216,part1.Thisremarkableearlyarticlepresenteda
behavioral analysis of mergers and acquisitions that abandoned the assumption of
rationality,longbeforesuchanalysesbecamepopular.
“value-destroying mergers”: Ulrike Malmendier and Geoffrey Tate, “Who Makes
Acquisitions? CEO Overconfidence and the Market’s Reaction,” Journal of Financial
Economics89(2008):20–43.
“engage in earnings management”: Ulrike Malmendier and Geoffrey Tate, “Superstar
CEOs,”QuarterlyJournalofEconomics24(2009),1593–1638.
self-aggrandizement to a cognitive bias: Paul D. Windschitl, Jason P. Rose, Michael T.
Stalk-fleet, and Andrew R. Smith, “Are People Excessive or Judicious in Their
Egocentrism? A Modeling Approach to Understanding Bias and Accuracy in People’s
Optimism,”JournalofPersonalityandSocialPsychology95(2008):252–73.
averageoutcomeisaloss:Aformofcompetitionneglecthasalsobeenobservedinthe
timeofdayatwhichsellersoneBaychoosetoendtheirauctions.Theeasyquestionis:At
whattimeisthetotalnumberofbiddersthehighest?Answer:around7:00p.m.EST.The
question sellers should answer is harder: Considering how many other sellers end their
auctions during peak hours, at what time will there be the most bidders looking at my
auction? The answer: around noon, when the number of bidders is large relative to the
numberofsellers.The sellers who rememberthecompetitionandavoidprimetimeget
higher prices. Uri Simonsohn, “eBay’s Crowded Evenings: Competition Neglect in
MarketEntryDecisions,”ManagementScience56(2010):1060–73.
“diagnosisantemortem”:EtaS.BernerandMarkL.Graber,“OverconfidenceasaCause
ofDiagnosticErrorinMedicine,”AmericanJournalofMedicine121(2008):S2–S23.
“disclosinguncertaintytopatients”:PatCroskerryandGeoffNorman,“Overconfidence
inClinicalDecisionMaking,”AmericanJournalofMedicine121(2008):S24–S29.
backgroundofrisktaking:KahnemanandLovallo,“TimidChoicesandBoldForecasts.”
Royal Dutch Shell: J. Edward Russo and Paul J. H. Schoemaker, “Managing
Overconfidence,”SloanManagementReview33(1992):7–17.
25:Bernoulli’sErrors
Mathematical Psychology: Clyde H. Coombs, Robyn M. Dawes, and Amos Tversky,
MathematicalPsychology:AnElementaryIntroduction(EnglewoodCliffs,NJ:Prentice-
Hall,1970).
for the rich and for the poor: This rule applies approximately to many dimensions of
sensationandperception.ItisknownasWeberslaw,aftertheGermanphysiologistErnst
Heinrich Weber, who discovered it. Fechner drew on Webers law to derive the
logarithmicpsychophysicalfunction.
$10millionfrom$100million:Bernoulli’sintuitionwascorrect,andeconomistsstilluse
thelogofincomeorwealthinmanycontexts.Forexample,whenAngusDeatonplotted
the average life satisfaction of residents of many countries against the GDP of these
countries,heusedthelogarithmofGDPasameasureofincome.Therelationship,itturns
out,isextremelyclose:Residentsofhigh-GDPcountriesaremuchmoresatisfiedwiththe
qualityoftheirlivesthanareresidentsofpoorcountries,andadoublingofincomeyields
approximatelythesameincrementofsatisfactioninrichandpoorcountriesalike.
“St. Petersburg paradox”: Nicholas Bernoulli, a cousin of Daniel Bernoulli, asked a
questionthatcanbeparaphrasedasfollows:“Youareinvitedtoagameinwhichyoutoss
a coin repeatedly. You receive $2 if it shows heads, and the prize doubles with every
successive toss that shows heads. The game ends when the coin first shows tails. How
much would you pay for an opportunity to play that game?” People do not think the
gambleisworthmorethanafewdollars,althoughitsexpectedvalueisinfinite—because
theprizekeepsgrowing,theexpectedvalueis$1foreachtoss,toinfinity.However,the
utility of the prizes grows much more slowly, which explains why the gamble is not
attractive.
“historyofone’swealth”:OtherfactorscontributedtothelongevityofBernoulli’stheory.
Oneisthatitisnaturaltoformulatechoicesbetweengamblesintermsofgains,ormixed
gains and losses. Not many people thought about choices in which all options are bad,
althoughwewerebynomeansthefirsttoobserveriskseeking.Anotherfactthatfavors
Bernoulli’stheoryisthatthinkingintermsoffinalstatesofwealthandignoringthepastis
oftenaveryreasonablethingtodo.Economistsweretraditionallyconcernedwithrational
choices,andBernoulli’smodelsuitedtheirgoal.
26:ProspectTheory
ast=“2%”>
subjectivevalueofwealth:StanleyS.Stevens,“ToHonorFechnerandRepealHisLaw,”
Science133(1961):80–86.Stevens,Psychophysics.
The three principles: Writing this sentence reminded me that the graph of the value
functionhasalreadybeenusedasanemblem.EveryNobellaureatereceivesanindividual
certificate with a personalized drawing, which is presumably chosen by the committee.
Myillustrationwasastylizedrenditionoffigure10.
“lossaversionratio”:Thelossaversionratioisoftenfoundtobeintherangeof1.5and
2.5: Nathan Novemsky and Daniel Kahneman, “The Boundaries of Loss Aversion,”
JournalofMarketingResearch42(2005):119–28.
emotional reaction to losses: Peter Sokol-Hessner et al., “Thinking Like a Trader
SelectivelyReducesIndividuals’LossAversion,”PNAS106(2009):5035–40.
Rabin’stheorem:Forseveralconsecutiveyears,Igaveaguestlectureintheintroductory
financeclassofmycolleagueBurtonMalkiel.IdiscussedtheimplausibilityofBernoulli’s
theory each year. I noticed a distinct change in my colleague’s attitude when I first
mentioned Rabin’s proof. He was now prepared to take the conclusion much more
seriouslythaninthepast.Mathematicalargumentshaveadefinitivequalitythatismore
compelling than appeals to common sense. Economists are particularly sensitive to this
advantage.
rejectsthatgamble:Theintuitionoftheproofcanbeillustratedbyanexample.Suppose
anindividual’swealthisW,andsherejectsagamblewithequalprobabilitiestowin$11
or lose $10. If the utility function for wealth is concave (bent down), the preference
impliesthatthevalueof$1hasdecreasedbyover9%overanintervalof$21!Thisisan
extraordinarilysteepdeclineandtheeffectincreasessteadilyasthegamblesbecomemore
extreme.
“Evenalousylawyer”:MatthewRabin,“RiskAversionandExpected-UtilityTheory:A
CalibrationTheorem,”Econometrica68(2000):1281–92.MatthewRabinandRichardH.
Thaler,“Anomalies:RiskAversion,”JournalofEconomicPerspectives15(2001):219–
32.
economistsandpsychologists:Severaltheoristshaveproposedversionsofregrettheories
thatarebuiltontheideathatpeopleareabletoanticipatehowtheirfutureexperiences
willbeaffectedbytheoptionsthatdidnotmaterializeand/orbythechoicestheydidnot
make: David E. Bell, “Regret in Decision Making Under Uncertainty,” Operations
Research 30(1982): 961–81. GrahamLoomes and RobertSugden, “Regret Theory:An
AlternativetoRationalChoiceUnderUncertainty,”EconomicJournal92(1982):805–25.
BarbaraA.Mellers,“ChoiceandtheRelativePleasureofConsequences,”Psychological
Bulletin 126 (2000): 910–24. Barbara A. Mellers, Alan Schwartz, and Ilana Ritov,
“Emotion-Based Choice,” Journal of Experimental Psychology—General 128 (1999):
332–45. Decision makers’ choices between gambles depend on whether they expect to
knowtheoutcomeofthegambletheydidnotchoose.IlanaRitov,“ProbabilityofRegret:
Anticipation of Uncertainty Resolution in Choice,” Organiz {an>y did not ational
BehaviorandHumanDecisionProcesses66(1966):228–36.
27:TheEndowmentEffect
Whatismissingfromthefigure:Atheoreticalanalysisthatassumeslossaversionpredicts
a pronounced kink of the indifference curve at the reference point: Amos Tversky and
DanielKahneman,“LossAversioninRisklessChoice:AReference-DependentModel,”
QuarterlyJournalofEconomics106(1991):1039–61.JackKnetschobservedthesekinks
in an experimental study: “Preferences and Nonreversibility of Indifference Curves,”
JournalofEconomicBehavior&Organization17(1992):131–39.
periodofoneyear:AlanB.KruegerandAndreasMueller,“JobSearchandJobFindingin
a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data,”
workingpaper,PrincetonUniversityIndustrialRelationsSection,January2011.
didnotownthebottle:Technically,thetheoryallowsthebuyingpricetobeslightlylower
thanthesellingpricebecauseofwhateconomistscallan“incomeeffect”:Thebuyerand
the seller are not equally wealthy, because the seller has an extra bottle. However, the
effectinthiscaseisnegligiblesince$50isaminutefractionoftheprofessors wealth.
Thetheorywouldpredictthatthisincomeeffectwouldnotchangehiswillingnesstopay
byevenapenny.
wouldbepuzzledbyit:TheeconomistAlanKruegerreportedonastudyheconductedon
theoccasionoftakinghisfathertotheSuperBowl:“Weaskedfanswhohadwontheright
tobuyapairofticketsfor$325or$400eachinalotterywhethertheywouldhavebeen
willingtopay$3,000aticketiftheyhadlostinthelotteryandwhethertheywouldhave
sold their tickets if someone had offered them $3,000 apiece. Ninety-four percent said
theywouldnothaveboughtfor$3,000,andninety-twopercentsaidtheywouldnothave
soldatthatprice.”Heconcludesthat“rationalitywasinshortsupplyattheSuperBowl.”
AlanB.Krueger,“SupplyandDemand:AnEconomistGoestotheSuperBowl,”Milken
InstituteReview:AJournalofEconomicPolicy3(2001):22–29.
givingup abottleofnicewine:Strictlyspeaking, loss aversionreferstotheanticipated
pleasureandpain,whichdeterminechoices.Theseanticipationscouldbewronginsome
cases. Deborah A. Kermer et al., “Loss Aversion Is an Affective Forecasting Error,”
PsychologicalScience17(2006):649–53.
markettransactions:NovemskyandKahneman,“TheBoundariesofLossAversion.”
halfofthetokenswillchangehands:Imaginethatalltheparticipantsareorderedinaline
by the redemption value assigned to them. Now randomly allocate tokens to half the
individualsintheline.Halfofthepeopleinthefrontofthelinewillnothaveatoken,and
halfofthepeopleattheendofthelinewillownone.Thesepeople(halfofthetotal)are
expectedtomovebytradingplaceswitheachother,sothatintheendeveryoneinthefirst
halfofthelinehasatoken,andnoonebehindthemdoes.
Brainrecordings:BrianKnutsonetal.,“NeuralAntecedentsoftheEndowmentEffect,”
Neuron 58 (2008): 814–22. Brian Knutson an {an utson et ad Stephanie M. Greer,
“Anticipatory Affect: Neural Correlates and Consequences for Choice,” Philosophical
TransactionsoftheRoyalSocietyB363(2008):3771–86.
riskless and risky decisions: A review of the price of risk, based on “international data
from16differentcountriesduringover100years,”yieldedanestimateof2.3,“instriking
agreement with estimates obtained in the very different methodology of laboratory
experimentsofindividualdecision-making”:MosheLevy,“LossAversionandthePriceof
Risk,”QuantitativeFinance10(2010):1009–22.
effect of price increases: Miles O. Bidwel, Bruce X. Wang, and J. Douglas Zona, “An
Analysis of Asymmetric Demand Response to Price Changes: The Case of Local
Telephone Calls,” Journal of Regulatory Economics 8 (1995): 285–98. Bruce G. S.
Hardie, Eric J. Johnson, and Peter S. Fader, “Modeling Loss Aversion and Reference
DependenceEffectsonBrandChoice,”MarketingScience12(1993):378–94.
illustrate the power of these concepts: Colin Camerer, “Three Cheers—Psychological,
Theoretical, Empirical—for Loss Aversion,” Journal of Marketing Research 42 (2005):
129–33. Colin F. Camerer, “Prospect Theory in the Wild: Evidence from the Field,” in
Choices, Values, and Frames, ed. Daniel Kahneman and Amos Tversky (New York:
RussellSageFoundation,2000),288–300.
condoapartmentsinBoston:DavidGenesoveandChristopherMayer,“LossAversionand
Seller Behavior: Evidence from the Housing Market,” Quarterly Journal of Economics
116(2001):1233–60.
effect of trading experience: John A. List, “Does Market Experience Eliminate Market
Anomalies?”QuarterlyJournalofEconomics118(2003):47–71.
Jack Knetsch also: Jack L. Knetsch, “The Endowment Effect and Evidence of
NonreversibleIndifferenceCurves,”AmericanEconomicReview79(1989):1277–84.
ongoing debate about the endowment effect: Charles R. Plott and Kathryn Zeiler, “The
Willingness to Pay–Willingness to Accept Gap, the ‘Endowment Effect,’ Subject
Misconceptions, and Experimental Procedures for Eliciting Valuations,” American
EconomicReview95(2005):530–45.CharlesPlott,aleadingexperimentaleconomist,has
been very skeptical of the endowment effect and has attempted to show that it is not a
“fundamental aspect of human preference” but rather an outcome of inferior technique.
PlottandZeilerbelievethatparticipantswhoshowtheendowmenteffectareundersome
misconceptionaboutwhattheirtruevaluesare,andtheymodifiedtheproceduresofthe
originalexperimentstoeliminatethemisconceptions.Theydevisedanelaboratetraining
procedureinwhichtheparticipantsexperiencedtherolesofbothbuyersandsellers,and
were explicitly taught to assess their true values. As expected, the endowment effect
disappeared. Plott and Zeiler view their method as an important improvement of
technique. Psychologists would consider the method severely deficient, because it
communicates to the participants a message of what the experimenters consider
appropriatebehavior,whichhappenstocoincidewiththeexperimenters’theory.Plottand
ZeilersfavoredversionofKne{ers):tsch’sexchangeexperimentissimilarlybiased:It
doesnotallowtheownerofthegoodtohavephysicalpossessionofit,whichiscrucialto
theeffect.SeeCharlesR.PlottandKathrynZeiler,“ExchangeAsymmetriesIncorrectly
Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?” American
EconomicReview97(2007):1449–66.Theremaybeanimpassehere,whereeachside
rejectsthemethodsrequiredbytheother.
People who are poor: In their studies of decision making under poverty, Eldar Shafir,
Sendhil Mullainathan, and their colleagues have observed other instances in which
poverty induces economic behavior that is in some respects more realistic and more
rationalthanthatofpeoplewhoarebetteroff.Thepooraremorelikelytorespondtoreal
outcomesthanto theirdescription.MarianneBertrand,SendhilMullainathan,andEldar
Shafir, “Behavioral Economics and Marketing in Aid of Decision Making Among the
Poor,”JournalofPublicPolicy&Marketing25(2006):8–23.
intheUnitedStatesandintheUK:Theconclusionthatmoneyspentonpurchasesisnot
experiencedasalossismorelikelytobetrueforpeoplewhoarerelativelywell-off.The
keymaybewhetheryouareawarewhenyoubuyonegoodthatyouwillnotbeunableto
affordanothergood.NovemskyandKahneman,“TheBoundariesofLossAversion.”Ian
Bateman et al., “Testing Competing Models of Loss Aversion: An Adversarial
Collaboration,”JournalofPublicEconomics89(2005):1561–80.
28:BadEvents
heartbeataccelerated:PaulJ.Whalenetal.,“HumanAmygdalaResponsivitytoMasked
Fearful Eye Whites,” Science 306 (2004): 2061. Individuals with focal lesions of the
amygdalashowedlittleornolossaversionintheirriskychoices:BenedettoDeMartino,
Colin F. Camerer, and Ralph Adolphs, “Amygdala Damage Eliminates Monetary Loss
Aversion,”PNAS107(2010):3788–92.
bypassing the visual cortex: Joseph LeDoux, The Emotional Brain: The Mysterious
UnderpinningsofEmotionalLife(NewYork:Touchstone,1996).
processed faster: Elaine Fox et al., “Facial Expressions of Emotion: Are Angry Faces
DetectedMoreEfficiently?”Cognition&Emotion14(2000):61–92.
“popsout”:ChristineHansenandRanaldHansen,“FindingtheFaceintheCrowd:An
AngerSuperiorityEffect,”JournalofPersonalityandSocialPsychology54(1988):917–
24.
“acceptable/unacceptable”:JosJ.A.VanBerkumetal.,“RightorWrong?TheBrain’s
Fast Response to Morally Objectionable Statements,” Psychological Science 20 (2009):
1092–99.
negativitydominance:PaulRozinandEdwardB.Royzman,“NegativityBias,Negativity
Dominance,andContagion,”Personality andSocialPsychology Review5(2001):296–
320.
resistanttodisconfirmation:RoyF.Baumeister,EllenBratslavsky,CatrinFinkenauer,and
KathleenD.Vohs,“BadIsStrongerThanGood,”ReviewofGeneralPsychology5(200
{/spFac1):323.
biologically significant improvement: Michel Cabanac, “Pleasure: The Common
Currency,”JournalofTheoreticalBiology155(1992):173–200.
not equally powerful: Chip Heath, Richard P. Larrick, and George Wu, “Goals as
ReferencePoints,”CognitivePsychology38(1999):79–109.
rain-drenched customers: Colin Camerer, Linda Babcock, George Loewenstein, and
Richard Thaler, “Labor Supply of New York City Cabdrivers: One Day at a Time,”
Quarterly Journal of Economics 112 (1997): 407–41. The conclusions of this research
havebeenquestioned:HenryS.Farber,“IsTomorrowAnotherDay?TheLaborSupplyof
NewYorkCabDrivers,”NBERWorkingPaper9706,2003.Aseriesofstudiesofbicycle
messengersinZurichprovidesstrongevidencefortheeffectofgoals,inaccordwiththe
originalstudyofcabdrivers:ErnstFehrandLorenzGoette,“DoWorkersWorkMoreif
WagesAreHigh?EvidencefromaRandomizedFieldExperiment,”AmericanEconomic
Review97(2007):298–317.
communicateareference point:DanielKahneman, “ReferencePoints, Anchors, Norms,
andMixedFeelings,”OrganizationalBehaviorandHumanDecisionProcesses51(1992):
296–312.
“wins the contest”: John Alcock, Animal Behavior: An Evolutionary Approach
(Sunderland, MA: Sinauer Associates, 2009), 278–84, cited by Eyal Zamir, “Law and
Psychology: The Crucial Role of Reference Points and Loss Aversion,” working paper,
HebrewUniversity,2011.
merchants,employers,andlandlords:DanielKahneman,JackL.Knetsch,andRichardH.
Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” The
AmericanEconomicReview76(1986):728–41.
fairnessconcernsareeconomicallysignificant:ErnstFehr,LorenzGoette,andChristian
Zehnder,“ABehavioralAccountoftheLaborMarket:TheRoleofFairnessConcerns,”
AnnualReviewofEconomics1(2009):355–84.EricT.AndersonandDuncanI.Simester,
“Price Stickiness and Customer Antagonism,” Quarterly Journal of Economics 125
(2010):729–65.
altruisticpunishmentisaccompanied:DominiquedeQuervainetal.,“TheNeuralBasisof
AltruisticPunishment,”Science305(2004):1254–58.
actuallossesandforegonegains:DavidCohenandJackL.Knetsch,“JudicialChoiceand
DisparitiesBetweenMeasuresofEconomicValue,”OsgoodeHallLawReview30(1992):
737–70. Russell Korobkin, “The Endowment Effect and Legal Analysis,” Northwestern
UniversityLawReview97(2003):1227–93.
asymmetricaleffectsonindividualwell-being:Zamir,“LawandPsychology.”
29:TheFourfoldPattern
andotherdisasters:Includingexposuretoa“Dutchbook,”whichisasetofgamblesthat
yourincorrectpreferencescommityoutoacceptan{to>
puzzle that Allais constructed: Readers who are familiar with the Allais paradoxes will
recognizethatthisversionisnew.Itisbothmuchsimplerandactuallyastrongerviolation
than the original paradox. The left-hand option is preferred in the first problem. The
second problem is obtained by adding a more valuable prospect to the left than to the
right,buttheright-handoptionisnowpreferred.
sorely disappointed: As the distinguished economist Kenneth Arrow recently described
theevent,theparticipantsinthemeetingpaidlittleattentiontowhathecalled“Allais’s
littleexperiment.”Personalconversation,March16,2011.
estimatesforgains:Thetableshowsdecisionweightsforgains.Estimatesforlosseswere
verysimilar.
estimated from choices: Ming Hsu, Ian Krajbich, Chen Zhao, and Colin F. Camerer,
“Neural Response to Reward Anticipation under Risk Is Nonlinear in Probabilities,”
JournalofNeuroscience29(2009):2231–37.
parents of small children: W. Kip Viscusi, Wesley A. Magat, and Joel Huber, “An
InvestigationoftheRationalityofConsumerValuationsofMultipleHealthRisks,”RAND
JournalofEconomics18(1987):465–79.
psychologyofworry:Inarationalmodelwithdiminishingmarginalutility,peopleshould
payatleasttwo-thirdsasmuchtoreducethefrequencyofaccidentsfrom15to5unitsas
theyarewillingtopaytoeliminatetherisk.Observedpreferencesviolatedthisprediction.
not made much of it: C. Arthur Williams, “Attitudes Toward Speculative Risks as an
IndicatorofAttitudesTowardPureRisks,”JournalofRiskandInsurance33(1966):577–
86. Howard Raiffa, Decision Analysis: Introductory Lectures on Choices under
Uncertainty(Reading,MA:Addison-Wesley,1968).
shadowofciviltrials: Chris Guthrie, “Prospect Theory, Risk Preference, and the Law,”
NorthwesternUniversityLawReview97(2003):1115–63.JeffreyJ.Rachlinski,“Gains,
Losses and the Psychology of Litigation,” Southern California Law Review 70 (1996):
113–85.SamuelR.GrossandKentD.Syverud,“GettingtoNo:AStudyof Settlement
NegotiationsandtheSelectionofCasesforTrial,”MichiganLawReview90(1991):319–
93.
the frivolous claim: Chris Guthrie, “Framing Frivolous Litigation: A Psychological
Theory,”UniversityofChicagoLawReview67(2000):163–216.
30:RareEvents
wishtoavoidit:GeorgeF.Loewenstein,ElkeU.Weber,ChristopherK.Hsee,andNed
Welch,“RiskasFeelings,”PsychologicalBulletin127(2001):267–86.
vividness in decision making: Ibid. Cass R. Sunstein, “Probability Neglect: Emotions,
WorstCases,andLaw,”YaleLawJournal112(2002):61–107.Seenotestochapter13:
Damasio,Descartes’Error.Slovic,Finucane,Peters,andMacGregor,“The{r,n>:C.A
AffectHeuristic.”
Amos’s student: Craig R. Fox, “Strength of Evidence, Judged Probability, and Choice
UnderUncertainty,”CognitivePsychology38(1999):167–89.
focaleventandits:Judgmentsoftheprobabilitiesofaneventanditscomplementdonot
alwaysaddupto100%.Whenpeopleareaskedaboutatopictheyknowverylittleabout
(“WhatisyourprobabilitythatthetemperatureinBangkokwillexceed100°tomorrowat
noon?”), the judged probabilities of the event and its complement add up to less than
100%.
receiving a dozen roses: In cumulative prospect theory, decision weights for gains and
lossesarenotassumedtobeequal,astheywereintheoriginalversionofprospecttheory
thatIdescribe.
superficialprocessing:ThequestionaboutthetwournswasinventedbyDaleT.Miller,
WilliamTurnbull,andCathyMcFarland,“WhenaCoincidenceIsSuspicious:TheRoleof
Mental Simulation,” Journal of Personality and Social Psychology 57 (1989): 581–89.
Seymour Epstein and his colleagues argued for an interpretation of it in terms of two
systems: Lee A. Kirkpatrick and Seymour Epstein, “Cognitive-Experiential Self-Theory
and Subjective Probability: Evidence for Two Conceptual Systems,” Journal of
PersonalityandSocialPsychology63(1992):534–44.
judgedit as more dangerous:KimihikoYamagishi,“Whena12.86%MortalityIsMore
Dangerous Than 24.14%: Implications for Risk Communication,” Applied Cognitive
Psychology11(1997):495–506.
forensicpsychologists:Slovic,Monahan,andMacGregor,“ViolenceRiskAssessmentand
RiskCommunication.”
“1of1,000capitalcases”:JonathanJ.Koehler,“WhenArePeoplePersuadedbyDNA
MatchStatistics?”LawandHumanBehavior25(2001):493–513.
studiesofchoicefromexperience:RalphHertwig,GregBarron,ElkeU.Weber,andIdo
Erev, “Decisions from Experience and the Effect of Rare Events in Risky Choice,”
PsychologicalScience15(2004):534–39.RalphHertwigandIdoErev,“TheDescription-
ExperienceGapinRiskyChoice,”TrendsinCognitiveSciences13(2009):517–23.
notyetsettled:LiatHadarandCraigR.Fox,“InformationAsymmetryinDecisionfrom
DescriptionVersusDecisionfromExperience,”JudgmentandDecisionMaking4(2009):
317–25.
“chancesofrareevents”:HertwigandErev,“TheDescription-ExperienceGap.”
31:RiskPolicies
inferior option BC: The calculation is straightforward. Each of the two combinations
consistsofasurethingandagamble.Addthesurethingtobothoptionsofthegambleand
youwillfindADandBC.
the equivalent of “locking in”: Thomas Langer and Martin Weber, “Myopic Prospect
Theory vs. Myopic Loss Aversion: How General Is the Phenomenon?” Journal of E
{>Joenon?&conomicBehavior&Organization56(2005):25–38.
32:KeepingScore
driveintoablizzard:Theintuitionwasconfirmedinafieldexperimentinwhicharandom
selectionofstudentswhopurchasedseasonticketstotheuniversitytheaterreceivedtheir
ticketsatamuchreducedprice.Afollow-upofattendancerevealedthatstudentswhohad
paidthefullpricefortheirticketsweremorelikelytoattend,especiallyduringthefirst
halfoftheseason.Missingashowonehaspaidforinvolvestheunpleasantexperienceof
closinganaccountinthered.ArkesandBlumer,“ThePsychologyofSunkCosts.”
thedispositioneffect:HershShefrinandMeirStatman,“TheDispositiontoSellWinners
Too Early and Ride Losers Too Long: Theory and Evidence,” Journal of Finance 40
(1985): 777–90. Terrance Odean, “Are Investors Reluctant to Realize Their Losses?”
JournalofFinance53(1998):1775–98.
less susceptible: Ravi Dhar and Ning Zhu, “Up Close and Personal: Investor
SophisticationandtheDispositionEffect,”ManagementScience52(2006):726–40.
fallacycanbeovercome:DarrinR.Lehman,RichardO.Lempert,andRichardE.Nisbett,
“TheEffectsofGraduateTrainingonReasoning:FormalDisciplineandThinkingabout
Everyday-LifeEvents,”AmericanPsychologist43(1988):431–42.
“asinkingfeeling”:MarcelZeelenbergandRikPieters,“ATheoryofRegretRegulation
1.0,”JournalofConsumerPsychology17(2007):3–18.
regrettonormality:KahnemanandMiller,“NormTheory.”
habituallytakingunreasonable risks: Thehitchhikerquestionwasinspiredbya famous
example discussed by the legal philosophers Hart and Honoré: “A woman married to a
manwhosuffersfromanulceratedconditionofthestomachmightidentifyeatingparsnips
asthecause ofhisindigestion.Thedoctormightidentifytheulceratedconditionasthe
causeandthemealasamereoccasion.”Unusualeventscallforcausalexplanationsand
alsoevokecounterfactualthoughts,andthetwoarecloselyrelated.Thesameeventcanbe
compared to either a personal norm or the norm of other people, leading to different
counterfactuals, different causal attributions, and different emotions (regret or blame):
HerbertL.A.HartandTonyHonoré,CausationintheLaw(NewYork:OxfordUniversity
Press,1985),33.
remarkablyuniform:DanielKahnemanandAmosTversky,“TheSimulationHeuristic,”in
JudgmentUnderUncertainty:HeuristicsandBiases,ed.DanielKahneman,PaulSlovic,
andAmosTversky(NewYork:CambridgeUniversityPress,1982),160–73.
applies to blame: Janet Landman, “Regret and Elation Following Action and Inaction:
Affective Responses to Positive Versus Negative Outcomes,” Personality and Social
PsychologyBulletin13(1987):524–36.FaithGleicheretal.,“TheRoleofCounterfactual
ThinkinginJudgmentofAffect,”PersonalityandSocialPsychologyBulletin16(1990):
284–95.
actionsthatdeviatefromthedefault:DaleT.MillerandBrianR.Taylor,“Counterfactual
Thought,Regret,andSuperstition:HowtoAvoidKickingYourself,”inWhatMightHave
Been:TheSocialPsychologyofCounterfactualThinking,ed.NealJ.RoeseandJamesM.
Olson(Hillsdale,NJ:Erlbaum,1995),305–31.
produceblameandregret:MarcelZeelenberg,KeesvandenBos,EricvanDijk,andRik
Pieters, “The Inaction Effect in the Psychology of Regret,” Journal of Personality and
SocialPsychology82(2002):314–27.
brandnamesovergenerics:ItamarSimonson,“TheInfluenceofAnticipatingRegretand
ResponsibilityonPurchaseDecisions,”Journalof Consumer Research 19 (1992): 105–
18.
clean up their portfolios: Lilian Ng and Qinghai Wang, “Institutional Trading and the
Turn-of-the-YearEffect,”JournalofFinancialEconomics74(2004):343–66.
lossaverseforaspectsofyourlife:TverskyandKahneman,“LossAversioninRiskless
Choice.”EricJ.Johnson,SimonGächter,andAndreasHerrmann,“ExploringtheNature
ofLossAversion,”CentreforDecisionResearchandExperimentalEconomics,University
ofNottingham,DiscussionPaperSeries,2006.EdwardJ.McCaffery,DanielKahneman,
and Matthew L. Spitzer, “Framing the Jury: Cognitive Perspectives on Pain and
Suffering,”VirginiaLawReview81(1995):1341–420.
classic on consumer behavior: Richard H. Thaler, “Toward a Positive Theory of
ConsumerChoice,”JournalofEconomicBehaviorandOrganization39(1980):36–90.
tabootradeoff:PhilipE.Tetlocketal.,“ThePsychologyoftheUnthinkable:TabooTrade-
Offs,ForbiddenBaseRates,andHereticalCounterfactuals,”Journal of Personalityand
SocialPsychology78(2000):853–70.
where the precautionary principle: Cass R. Sunstein, The Laws of Fear: Beyond the
PrecautionaryPrinciple(NewYork:CambridgeUniversityPress,2005).
“psychologicalimmunesystem”:DanielT.Gilbertetal.,“LookingForwardtoLooking
Backward:TheMispredictionofRegret,”PsychologicalScience15(2004):346–50.
33:Reversals
intheman’sregularstore:DaleT.MillerandCathyMcFarland,“CounterfactualThinking
andVictimCompensation:ATestofNormTheory,”PersonalityandSocialPsychology
Bulletin12(1986):513–19.
reversals of judgment and choice: The first step toward the current interpretation was
takenbyMaxH. Bazerman, GeorgeF. Loewenstein,andSallyB.White,“Reversals of
Preference in Allocation Decisions: Judging Alternatives Versus Judging Among
Alternatives,” Administrative Science Quarterly 37 (1992): 220–40. Christopher Hsee
introducedtheterminologyofjointandseparateevaluation,andformulatedtheimportant
evaluability hypothesis, which explains reversals by the idea that some attributes {e
a#822becomeevaluableonlyinjointevaluation:“AttributeEvaluability:ItsImplications
forJoint-SeparateEvaluationReversalsandBeyond,”inKahnemanandTversky,Choices,
Values,andFrames.
conversationbetweenpsychologistsandeconomists:SarahLichtensteinandPaulSlovic,
“ReversalsofPreferenceBetweenBidsandChoicesinGamblingDecisions,”Journalof
ExperimentalPsychology89(1971):46–55.Asimilarresultwasobtainedindependently
by Harold R. Lindman, “Inconsistent Preferences Among Gambles,” Journal of
ExperimentalPsychology89(1971):390–97.
bewilderedparticipant: For a transcript of the famous interview, see Sarah Lichtenstein
andPaulSlovic,eds.,TheConstructionofPreference(NewYork:CambridgeUniversity
Press,2006).
the prestigious American Economic Review: David M. Grether and Charles R. Plott,
“Economic Theory of Choice and the Preference Reversals Phenomenon,” American
EconomicReview69(1979):623–28.
“context in which the choices are made”: LichtensteinandSlovic, The Construction of
Preference,96.
one embarrassing finding: Kuhn famously argued that the same is true of physical
sciencesas well:ThomasS. Kuhn,“The Functionof Measurement inModern Physical
Science,”Isis52(1961):161–93.
likingofdolphins:Thereisevidencethatquestionsabouttheemotionalappealofspecies
and the willingness to contribute to their protection yield the same rankings: Daniel
KahnemanandIlanaRitov,“DeterminantsofStatedWillingnesstoPayforPublicGoods:
AStudyintheHeadlineMethod,”JournalofRiskandUncertainty9(1994):5–38.
superioronthisattribute:Hsee,“AttributeEvaluability.”
“requisite record-keeping”: Cass R. Sunstein, Daniel Kahneman, David Schkade, and
IlanaRitov,“PredictablyIncoherentJudgments,”StanfordLawReview54(2002):1190.
34:FramesandReality
unjustifiedinfluencesofformulation:AmosTverskyandDanielKahneman,“TheFraming
ofDecisionsandthePsychologyofChoice,”Science211(1981):453–58.
paidwithcashoroncredit:Thaler,“TowardaPositiveTheoryofConsumerChoice.”
10%mortalityisfrightening:BarbaraMcNeil,StephenG.Pauker,HaroldC.SoxJr.,and
Amos Tversky, “On the Elicitation of Preferences for Alternative Therapies,” New
EnglandJournalofMedicine306(1982):1259–62.
“Asian disease problem”: Some people have commented that the “Asian” label is
unnecessary and pejorative. We probably would not use it today, but the example was
writteninthe1970s,whensensitivitytogrouplabelswaslessdevelopedthanitistoday.
Thewordwasaddedtomaketheexamplemoreconcretebyremindingrespondentsofthe
Asianfluepidem{anslessicof1957.
ChoiceandConsequence:ThomasSchelling,ChoiceandConsequence(Cambridge,MA:
HarvardUniversityPress,1985).
misleadingframe:RichardP.LarrickandJackB.Soll,“TheMPGIllusion,”Science320
(2008):1593–94.
rateoforgandonationinEuropeancountries:EricJ.JohnsonandDanielGoldstein,“Do
DefaultsSaveLives?”Science302(2003):1338–39.
35:TwoSelves
“wantability”: Irving Fisher, “Is ‘Utility’ the Most Suitable Term for the Concept It Is
UsedtoDenote?”AmericanEconomicReview8(1918):335.
atanymoment:FrancisEdgeworth,MathematicalPsychics(NewYork:Kelley,1881).
under which his theory holds: Daniel Kahneman, Peter P. Wakker, and Rakesh Sarin,
“BacktoBentham?ExplorationsofExperiencedUtility,”QuarterlyJournalofEconomics
112(1997):375–405.DanielKahneman,“ExperiencedUtilityandObjectiveHappiness:
A Moment-Based Approach” and “Evaluation by Moments: Past and Future,” in
KahnemanandTversky,Choices,Values,andFrames,673–92,693–708.
a physician and researcher: Donald A. Redelmeier and Daniel Kahneman, “Patients’
Memories of Painful Medical Treatments: Real-time and Retrospective Evaluations of
TwoMinimallyInvasiveProcedures,”Pain66(1996):3–8.
free to choose: Daniel Kahneman, Barbara L. Frederickson, Charles A. Schreiber, and
Donald A. Redelmeier, “When More Pain Is Preferred to Less: Adding a Better End,”
PsychologicalScience4(1993):401–405.
duration of the shock: Orval H. Mowrer and L. N. Solomon, “Contiguity vs. Drive-
Reduction in Conditioned Fear: The Proximity and Abruptness of Drive Reduction,”
AmericanJournalofPsychology67(1954):15–25.
burstofstimulation:PeterShizgal,“OntheNeuralComputationofUtility:Implications
fromStudiesofBrainStimulationReward,”inWell-Being:TheFoundationsofHedonic
Psychology, ed. Daniel Kahneman, Edward Diener, and Norbert Schwarz (New York:
RussellSageFoundation,1999),500–24.
36:LifeasaStory
hadalover: Paul Rozinand JenniferStellar, “Posthumous EventsAffectRatedQuality
andHappinessofLives,”JudgmentandDecisionMaking4(2009):273–79.
entirelivesaswellasbriefepisodes:EdDiener,DerrickWirtz,andShigehiroOishi,“End
EffectsofRatedLifeQuality:TheJamesDeanEffect,”PsychologicalScience12(2001):
124–28.Thesameseriesofexperimentsalsotestedforthepeak-endruleinanunhappy
lifeandfoundsimilarresults:Jenwasnotjudgedtwiceasunhappyifshelivedmiserably
for 60 years rather than 30, but { thk-e she was regarded as considerably happier if 5
mildlymiserableyearswereaddedjustbeforeherdeath.
37:ExperiencedWell-Being
lifeasawholethesedays:Anotherquestionthathasbeenusedfrequentlyis,“Takenall
together, how would you say things are these days? Would you say that you are very
happy,prettyhappy,or nottoohappy?”ThisquestionisincludedintheGeneralSocial
Survey in the United States, and its correlations with other variables suggest a mix of
satisfaction and experienced happiness. A pure measure of life evaluation used in the
GallupsurveysistheCantrilSelf-AnchoringStrivingScale,inwhichtherespondentrates
hisorhercurrentlifeonaladderscaleinwhich0is“theworstpossiblelifeforyou”and
10is“thebestpossiblelifeforyou.”Thelanguagesuggeststhatpeopleshouldanchoron
what they consider possible for them, but the evidence shows that people all over the
world have a common standard for what a good life is, which accounts for the
extraordinarilyhighcorrelation(r=.84)betweentheGDPofcountriesandtheaverage
ladderscoreoftheircitizens.AngusDeaton,“Income,Health,andWell-BeingAroundthe
World: Evidence from the Gallup World Poll,” Journal of Economic Perspectives 22
(2008):53–72.
“adreamteam”:TheeconomistwasAlanKruegerofPrinceton,notedforhisinnovative
analyses of unusual data. The psychologists were David Schkade, who had
methodological expertise; Arthur Stone, an expert on health psychology, experience
sampling,andecologicalmomentaryassessment;NorbertSchwarz,asocialpsychologist
whowasalsoanexpertonsurveymethodandhadcontributedexperimentalcritiquesof
well-beingresearch,includingtheexperimentonwhichadimeleftonacopyingmachine
influencedsubsequentreportsoflifesatisfaction.
intensity of various feelings: In some applications, the individual also provides
physiologicalinformation,suchascontinuousrecordingsofheartrate,occasionalrecords
of blood pressure, or samples of saliva for chemical analysis. The method is called
Ecological Momentary Assessment: Arthur A. Stone, Saul S. Shiffman, and Marten W.
DeVries, “Ecological Momentary Assessment Well-Being: The Foundations of Hedonic
Psychology,”inKahneman,Diener,andSchwarz,Well-Being,26–39.
spend their time: Daniel Kahneman et al., “A Survey Method for Characterizing Daily
LifeExperience:TheDayReconstructionMethod,”Science306(2004):1776–80.Daniel
KahnemanandAlanB.Krueger,“DevelopmentsintheMeasurementofSubjectiveWell-
Being,”JournalofEconomicPerspectives20(2006):3–24.
physiologicalindicationsof emotion:Previousresearchhad documented thatpeopleare
able to “relive” feelings they had in a past situation when the situation is retrieved in
sufficientlyvividdetail.MichaelD.RobinsonandGeraldL.Clore,“BeliefandFeeling:
Evidence for an Accessibility Model of Emotional Self-Report,” Psychological Bulletin
128(2002):934–60.
statetheU-index:AlanB.Krueger,ed.,MeasuringtheSubjectiveWell-BeingofNations:
National Accounts of Time Use and Well-Being (Chicago: University of Chicago Press,
2009).
distributio{i>dll-Being:EdDiener,“MostPeopleAreHappy,”PsychologicalScience7
(1996):181–85.
Gallup World Poll: For a number of years I have been one of several Senior Scientists
associatedwiththeeffortsoftheGallupOrganizationinthedomainofwell-being.
more than 450,000 responses: Daniel Kahneman and Angus Deaton, “High Income
ImprovesEvaluationofLifebutNotEmotionalWell-Being,”ProceedingsoftheNational
AcademyofSciences107(2010):16489–93.
worsefortheverypoor:DylanM.Smith,KennethM.Langa,MohammedU.Kabeto,and
PeterUbel,“Health,Wealth,andHappiness:FinancialResourcesBufferSubjectiveWell-
BeingAftertheOnsetofaDisability,”PsychologicalScience16(2005):663–66.
$75,000 in high-cost areas: In a TED talk I presented in February 2010 I mentioned a
preliminaryestimateof$60,000,whichwaslatercorrected.
eatabarofchocolate!:JordiQuoidbach,ElizabethW.Dunn,K.V.Petrides,andMoïra
Mikolajczak, “Money Giveth, Money Taketh Away: The Dual Effect of Wealth on
Happiness,”PsychologicalScience21(2010):759–63.
38:ThinkingAboutLife
German Socio-Economic Panel: Andrew E. Clark, Ed Diener, and Yannis Georgellis,
“LagsandLeadsinLifeSatisfaction:ATestoftheBaselineHypothesis.”Paperpresented
attheGermanSocio-EconomicPanelConference,Berlin,Germany,2001.
affectiveforecasting:DanielT.GilbertandTimothyD.Wilson,“WhytheBrainTalksto
Itself:SourcesofErrorinEmotionalPrediction,”PhilosophicalTransactionsoftheRoyal
SocietyB364(2009):1335–41.
only significant fact in their life: Strack, Martin, and Schwarz, “Priming and
Communication.”
questionnaireonlifesatisfaction:TheoriginalstudywasreportedbyNorbertSchwarzin
hisdoctoralthesis (in German)“Moodas Information: OntheImpactof Moodsonthe
EvaluationofOne’sLife”(Heidelberg:SpringerVerlag,1987).Ithasbeendescribedin
many places, notably Norbert Schwarz and Fritz Strack, “Reports of Subjective Well-
Being: Judgmental Processes and Their Methodological Implications,” in Kahneman,
Diener,andSchwarz,Well-Being,61–84.
goals that young people set: The study was described in William G. Bowen and Derek
Curtis Bok, The Shape of the River: Long-Term Consequences of Considering Race in
CollegeandUniversityAdmissions(Princeton:Princeton University Press, 1998). Some
ofBowenandBok’sfindingswerereportedbyCarolNickerson,NorbertSchwarz,andEd
Diener, “Financial Aspirations, Financial Success, and Overall Life Satisfaction: Who?
andHow?”JournalofHappinessStudies8(2007):467–515.
“being very well-off financially”: Alexander Astin, M. R. King, and G. T. Richardson,
“The American Freshman: National Norms for Fall 1976,” Cooperative Institutional
ResearchProgramoftheAmericanC{heon,RouncilonEducationandtheUniversityof
California at Los Angeles, Graduate School of Education, Laboratory for Research in
HigherEducation,1976.
money was not important: These results were presented in a talk at the American
Economic Association annual meeting in 2004. Daniel Kahneman, “Puzzles of Well-
Being,”paperpresentedatthemeeting.
happiness of Californians: The question of how well people today can forecast the
feelingsoftheirdescendantsahundredyearsfromnowisclearlyrelevanttothepolicy
response to climate change, but it can be studied only indirectly, which is what we
proposedtodo.
aspectsoftheirlives:Inposingthequestion,IwasguiltyofaconfusionthatInowtryto
avoid:Happinessandlifesatisfactionarenotsynonymous.Lifesatisfactionreferstoyour
thoughts and feelings when you think about your life, which happens occasionally—
includinginsurveysofwell-being.Happinessdescribesthefeelingspeoplehaveasthey
livetheirnormallife.
Ihadwonthefamilyargument:However,mywifehasneverconceded.Sheclaimsthat
onlyresidentsofNorthernCaliforniaarehappier.
students in California and in the Midwest: Asian students generally reported lower
satisfactionwiththeirlives,andAsianstudentsmadeupamuchlargerproportionofthe
samplesinCaliforniathanintheMidwest.Allowingforthisdifference,lifesatisfactionin
thetworegionswasidentical.
Howmuchpleasuredoyougetfromyourcar?:JingXuandNorbertSchwarzhavefound
thatthequalityofthecar(asmeasuredbyBlueBookvalue)predictstheowners’answer
toageneralquestionabouttheirenjoymentofthecar,andalsopredictspeople’spleasure
duringjoyrides.Butthequalityofthecarhasnoeffectonpeople’smoodduringnormal
commutes. Norbert Schwarz, Daniel Kahneman, and Jing Xu, “Global and Episodic
Reports of Hedonic Experience,” in R. Belli, D. Alwin, and F. Stafford (eds.), Using
Calendar and Diary Methods in Life Events Research (Newbury Park, CA: Sage), pp.
157–74.
paraplegicsspendinabadmood?:ThestudyisdescribedinmoredetailinKahneman,
“EvaluationbyMoments.”
think about their situation: Camille Wortman and Roxane C. Silver, “Coping with
IrrevocableLoss,Cataclysms,Crises,andCatastrophes:PsychologyinAction,”American
PsychologicalAssociation,MasterLectureSeries6(1987):189–235.
studiesofcolostomypatients:DylanSmithetal.,“MisrememberingColostomies?Former
Patients Give Lower Utility Ratings than Do Current Patients,” Health Psychology 25
(2006): 688–95. George Loewenstein and Peter A. Ubel, “Hedonic Adaptation and the
RoleofDecisionandExperienceUtilityinPublicPolicy,”JournalofPublicEconomics
92(2008):1795–1810.
the word miswanting: Daniel Gilbert and Timothy D. Wilson, “Miswanting: Some
ProblemsinAffectiveForecasting,”inFeelingandThinking:TheRoleofAffectinSocial
Cognition,ed.JosephP.Forgas(NewYork:CambridgeUniversityPress,2000),178–97.
Conclusions
tooimportanttobeignored:PaulDolanandDanielKahneman,“InterpretationsofUtility
andTheirImplicationsfortheValuationofHealth,”EconomicJournal118(2008):215–
234. Loewenstein and Ubel, “Hedonic Adaptation and the Role of Decision and
ExperienceUtilityinPublicPolicy.”
guidegovernmentpolicies:ProgresshasbeenespeciallyrapidintheUK,wheretheuseof
measures of well-being is now official government policy. These advances were due in
goodparttotheinfluenceofLordRichardLayard’sbookHappiness:LessonsfromaNew
Science, first published in 2005. Layard is among the prominent economists and social
scientistswho have been drawn into thestudyofwell-beinganditsimplications.Other
important sources are: Derek Bok, The Politics of Happiness: What Government Can
Learn from the New Research on Well-Being (Princeton: Princeton University Press,
2010).EdDiener,RichardLucus,UlrichSchmimmack,andJohnF.Helliwell,Well-Being
for Public Policy (New York: Oxford University Press, 2009). Alan B. Krueger, ed.,
MeasuringtheSubjectiveWell-BeingofNations:NationalAccountofTimeUseandWell-
Being(Chicago:UniversityofChicagoPress,2009).JosephE.Stiglitz,AmartyaSen,and
Jean-Paul Fitoussi, Report of the Commission on the Measurement of Economic
Performance and Social Progress. Paul Dolan, Richard Layard, and Robert Metcalfe,
Measuring Subjective Well-being for Public Policy: Recommendations on Measures
(London:OfficeforNationalStatistics,2011).
Irrational is a strong word: The view of the mind that Dan Ariely has presented in
PredictablyIrrational:TheHiddenForcesThatShapeOurDecisions(NewYork:Harper,
2008)isnotmuchdifferentfrommine,butwedifferinouruseoftheterm.
accept future addiction: Gary S. Becker and Kevin M. Murphy, “A Theory of Rational
Addiction,” Journal of Political Economics 96 (1988): 675–700. Nudge: Richard H.
Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and
Happiness(NewHaven:YaleUniversityPress,2008).
can institute and enforce: Atul Gawande, The Checklist Manifesto: How to Get Things
Right(NewYork:Holt,2009).DanielKahneman,DanLovallo,andOliverSibony,“The
BigIdea:BeforeYouMakeThatBigDecision…”HarvardBusinessReview89 (2011):
50–60.
distinctivevocabulary:ChipHeath,RichardP.Larrick,andJoshuaKlayman,“Cognitive
Repairs: How Organizational Practices Can Compensate for Individual Shortcomings,”
ResearchinOrganizationalBehavior20(1998):1–37.
P
Index
Theindexthatappearedintheprintversionofthistitledoesnotmatchthepagesinyour
eBook. Please use the search function on your eReading device to search for terms of
interest.Foryourreference,thetermsthatappearintheprintindexarelistedbelow.
adaptationlevel
Add-1task
adjustment;insufficient
affectheuristic;availabilityand
affectiveforecasting
airplanecrashes
Ajzen,Icek
Alarscare
algorithms;Apgarscores;hostilityto;multipleregression
Allais,Maurice
al-Qaeda
ambiguity,suppressionof
AmericanEconomicReview
amygdala
anchoringindex
anchors, anchoring; as adjustment; associative coherence in; associative memory and;
measurement of; as priming effect; random, power of; in System 1 and System 2;
usesandabusesof
anesthesiologists
angryfaces
anomalies
anteriorcingulate
Apgar,Virginia
Apgarscores
aphorisms
Ariely,Dan
Arrow,Kenneth
artexperts
artifacts,inresearch
Asch,Solomon
Ashenfelter,Orley
Asiandiseaseproblem
assessments,basic
associations;activatedideasin;causalityand;primingand
associative coherence; in anchoring; halo effect and; plausibility and, associative
coherence(cont.);WYSIATI(whatyouseeisallthereis)and
associative memory; abnormal events and; anchoring and; causality and; confirmation
biasand;creativityand;andestimatesofcausesofdeath
Åstebro,Thomas
Atlantic,The
attention;inself-control
paneight=“0%”width=”-5%”>
AttentionandEffort(Kahneman)
Auerbach,Red
authoritarianideas
availability; affect and; and awareness of one’s biases; expectations about; media and;
psychologyof;riskassessmentand,seeriskassessment
availabilitycascades
availabilityentrepreneurs
badandgood,distinctionsbetween
banks
banktellerproblem
Barber,Brad
Bargh,John
baseball
baseballcards
baselinepredictions
baserates;incabdriverproblem;causal;inhelpingexperiment;low;statistical;inTom
Wproblem;inYaleexamproblem
basicassessments
basketball
basketballtickets
bat-and-ballproblem
Baumeister,Roy
Bayes,Thomas
Bayesianstatistics
Bazerman,Max
Beane,Billy
Beatty,Jackson
Becker,Gary
“BecomingFamousOvernight”(Jacoby)
behavioraleconomics
BehavioralInsightTeam
“BeliefintheLawofSmallNumbers”(TverskyandKahneman)
beliefs:biasfor;past,reconstructionof
Benartzi,Shlomo
Bentham,Jeremy
Berlin,Isaiah
Bernoulli,Daniel
Bernouilli,Nicholas
Beyth,Ruth
bicyclemessengers
BlackSwan,The(Taleb)
blame
Blink(Gladwell)
Borg,Björn
Borgida,Eugene
“BoysWillBeBoys”(BarberandOdean)
Bradlee,Ben
brain;amygdalain;anteriorcingulatein;buyingandsellingand;emotionalframing
and;frontalareaof;pleasureand;prefrontalareaof;punishmentand;sugarin;
threatsand;andvariationsofprobabilities
BritishToxicologySociety
broadframing
Brockman,John
broken-legrule
budgetforecasts
BuilttoLast(CollinsandPorras)
Bush,GeorgeW.
businessandleadershippractices;atGoogle
businesspundits
Cabanac,Michel
cabdriverproblem
cabdrivers,NewYorkCity
Californians
Camerer,Colin
cancer;surgeryvs.radiationfor
CantrilSelf-AnchoringStrivingScale
Carroll,Lewis
carsanddriving;brakesin;drivingtests;fueleconomyand;pleasurefrom
cashbox
categories
causalbaserates
causalinterpretations;correlationand;regressioneffectsand
causalsituations
causalstereotypes
causes,andstatistics
CEOs;optimistic
certaintyeffect
CFOs
Chabris,Christopher
chanceandrandomness;misconceptionsof
changingone’smind
ChecklistManifesto,A(Gawande)
chess
children:caringfor;depressed;timespentwith
China
ChoiceandConsequence(Schelling)
choicearchitecture
choices: from description; from experience; see also decisions, decision
making;riskassessment
“Choices,Values,andFrames”(KahnemanandTversky)
CIA
Clark,Andrew
climate
Clinicalvs.StatisticalPrediction:ATheoreticalAnalysisandaReviewofthe
Evidence(Meehl)
Clinton,Bill
Coelho,Marta
coffeemugexperiments
cognitivebusyness
cognitive ease; in basic assessments; and illusions of remembering; and
illusionsoftruth;moodand;andwritingpersuasivemessages;WYSIATI
(whatyouseeisallthereis)and
cognitive illusions; confusing experiences with memories; of pundits; of
remembering;ofskill;ofstock-pickingskill;oftruth;ofunderstanding;of
validity
CognitiveReflectionTest(CRT)
cognitivestrain
Cohen,David
coherence;seealsoassociativecoherence
Cohn,Beruria
coincidence
coin-on-the-machineexperiment
cold-handexperiment
Collins,Jim
colonoscopies
colostomypatients
competence,judgingof
competitionneglect
complexvs.simplelanguage
concentration
cogndivheight=“0%”>
“ConditionsforIntuitiveExpertise:AFailuretoDisagree”(KahnemanandKlein)
confidence;biasof,overdoubt;overconfidence;WYSIATI(whatyouseeisallthereis)
and
confirmationbias
conjunctionfallacy
conjunctiveevents,evaluationof
“ConsequencesofEruditeVernacularUtilizedIrrespectiveofNecessity:Problemswith
UsingLongWordsNeedlessly”(Oppenheimer)
contiguityintimeandplace
control
cookieexperiment
correlation;causationand;illusory;regressionand;sharedfactorsand
correlationcoefficient
cost-benefitcorrelation
costs
creativity;associativememoryand
credibility
Csikszentmihalyi,Mihaly
curriculumteam
Damasio,Antonio
datingquestion
Dawes,Robyn
DayReconstructionMethod(DRM)
death:causesof;lifestoriesand;organdonationand;remindersof
Deaton,Angus
decisions, decision making; broad framing in; and choice from description; and choice
fromexperience;emotionsandvividnessin;expectationprinciplein;ingambles,see
gambles;globalimpressionsand;hindsightbiasand;narrowframingin;optimistic
biasin;planningfallacyand;povertyand;premortemand;referencepointsin;regret
and;riskand,seeriskassessment
decisionutility
decision weights; overweighting; unlikely events and; in utility theory vs. prospect
theory;vividoutcomesand;vividprobabilitiesand
decorrelatederrors
defaultoptions
denominatorneglect
depression
Detroit/Michiganproblem
Diener,Ed
dierollproblem
dinnerwareproblem
disclosures
diseasethreats
disgust
disjunctiveevents,evaluationof
dispositioneffect
DNAevidence
dolphins
Dosi,Giovanni
doubt;biasofconfidenceover;premortemand;suppressionof
DukeUniversity
Duluth,Minn.,bridgein
durationneglect
durationweighting
earthquakes
eating
eBay
Econometrica
economics; behavioral; Chicago school of; neuroeconomics; preference reversals
and;rational-agentmodelin
economictransactions,fairnessin
EconsandHumans
Edge
Edgeworth,Francis
education
effectivenessofsearchsets
effort;least,lawof;inself-control
egodepletion
electricity
electricshocks
emotionalcoherence,seehaloeffectemotionallearning
emotionsandmood:activitiesand;affectheuristic;availabilitybiasesand;inbasic
assessments;cognitiveeaseand;indecisionmaking;inframing;moodheuristic
for happiness; negative, measuring; and outcomes produced by action vs.
inaction; paraplegics and; perception of; substitution of question on; in vivid
outcomes;invividprobabilities;weatherand;workand
employers,fairnessrulesand
endangeredspecies
endowmenteffect;andthinkinglikeatrader
energy,mental
engagement
EnquiryConcerningHumanUnderstanding,An(Hume)
entrepreneurs;competitionneglectby
Epley,Nick
Epstein,Seymour
equal-weightingschemes
Erev,Ido
evaluabilityhypothesis
evaluations:joint;jointvs.single;single
evidence:one-sided;ofwitnesses
executivecontrol
expectationprinciple
expectations
expectedutilitytheory,seeutilitytheory
experiencedutility
experiencesampling
experiencingself;well-beingof;seealsowell-being
expert intuition; evaluating; illusions of validity of; overconfidence and; as
recognition;riskassessmentand;vs.statisticalpredictions;trustin
expertise,seeskill
ExpertPoliticalJudgment:HowGoodIsIt?HowCanWeKnow?(Tetlock)
ExxonValdezoilspill
eyes,pupildilationin
facereading
fairness
fallacies;conjunction;narrative;planning;sunk-cost
familiarity
FarSide,The(Larson)
fastandfrugalheuristic
fastthinking
fatigue
fear
Fechner,Gustav
feedback
Feller,William
financialcrisisof2008
fi
nancialadvisersandforecasters
firefighters
firstimpressions
Fischhoff,Baruch
flightinstructors
floodmonitor
Floridaeffect
flow
flowerssyllogism
Flyvbjerg,Bent
focus
focusingillusion
fonts
forecasts,seepredictionsandforecasts
footballgame
FordMotorCompany
formulas;algorithms;Apgarscores;hostilityto;forinterviews;multipleregression
formulationeffects
Fortune
fourfoldpattern;inlegalcases
Fox,Craig
Fox,Seymour
frames, framing; in Asian disease problem; in child exemption problem; in
disclosures;emotional;fuel economy and; good; inKEEP-LOSEstudy; organ
donationand;regulationson;insurvival-mortalityexperiment;inticketproblem
Frederick,Shane
Freedman,David
freedom
FreetoChoose(Friedman)
frequencyrepresentation
Frey,Bruno
Friedman,Milton
frowning;availabilityheuristicand;representativenessand
gains
Galinsky,Adam
Gallup-HealthwaysWell-BeingIndex
Galton,Francis
gambles;bundlingof;certaintyeffectand;emotionalframingin;lossaversionin;
lottery;mixed;andoutcomesproducedbyactionvs.inaction;possibilityeffect
and;psychologicalvalueof;regretand;simple;St.Petersburgparadoxand;vs.
surethings;utilityongsv>seealsoriskassessment
GatesFoundation
Gawande,Atul
Georgellis,Yannis
GermanSocio-EconomicPanel
gestures
Gibbs,Lois
Gigerenzer,Gerd
Gilbert,Daniel
Gilovich,Tom
Gladwell,Malcolm
globalwarming
glucose
goals
golf
goodandbad,distinctionsbetween
Google
gorillaexperiment
gossip
Gottman,John
Gould,StephenJay
gradesandgradepointaverages(GPAs)
gradingstudents’essays
Grether,David
group,joining
Guthrie,Chris
Haidt,Jonathan
haloeffect
HaloEffect,The(Rosenzweig)
happiness; of Californians; dating question and; income and; life stories and;
marriageand;moodheuristicfor;seealsowell-beinghappyfaces
happywords
Harding,WarrenG.
HarvardMedicalSchool
HarvardUniversity
health:diseasethreatsand;well-beingand;risksand;seealsomedicine
healthsurveyproblem
healthviolationpenalties
HebrewUniversityofJerusalem
“HedgehogandtheFox,The”(Berlin)
hedonimeter
Heider,Fritz
helpingexperiment
Hertwig,Ralph
Hess,Eckhard
heuristic,definitionof
highschoolcurriculumteam
hindsight:biasin;regretand
historicalevents
hitchhikerquestion
Hitler,Adolf
Hogarth,Robin
honestybox
“HowMentalSystemsBelieve”(Gilbert)
HowtoSolveIt(Pólya)
Hsee,Christopher
hubrishypothesis
HumansandEcons
Hume,David
hunger
hypotheses,testing
ideomotoreffect
illusions:cognitive,seecognitiveillusions;Müller-Lyer;3-D
imaginability,immediategratification
incongruity
independentjudgments
indifferencemap
inheritances
injectionpuzzle
InSearchofExcellence(PetersandWaterman)
insideview
insurance
intelligence;inmarriage;pretentiouslanguageand
intensitymatching
intention
interviews;inIsraeliDefenseForces
IntroductiontothePrinciplesofMoralsandLegislation(Bentham)
intuition: acquisiitiodution of; common use of word; of experts, see expert intuition;
predictive,seepredictionsandforecasts;asrecognition;Simon’sdefinitionof
InventorsAssistanceProgram
investments:stockportfolios;sunk-costfallacyand
InvisibleGorilla,The(ChabrisandSimons)
irrationality
Israel,bombingsin
IsraeliDefenseForces:flightinstructorsin;interviewsin;leaderlessgroupchallengein
IsraeliMinistryofEducation
“Jabberwocky”(Carroll)
Jacoby,Larry
Jencks,Christopher
jointevaluations;singleevaluationsvs.
judgmentheuristics
JudgmentinManagerialDecisionMaking(Bazerman)
judgments;basicassessmentsin;ofexperts,seeexpertintuition;intensitymatchingin;
mentalshotgunin;predictive,seepredictionsandforecasts;setsandprototypesin;
summary,ofcomplexinformation;seealsodecisions,decisionmaking
“JudgmentUnderUncertainty:HeuristicsandBiases”(TverskyandKahneman)
Julieproblem
jumpingtoconclusions;biasforbeliefandconfirmationin;haloeffectin,seehaloeffect;
suppressionofambiguityanddoubtin;WYSIATIin,seewhatyouseeisallthereis
Kaye,Danny
keepingscore;mentalaccountsand;regretand;responsibilityand
KEEP-LOSEstudy
kidneycancer
KillingGround,The
kitchenrenovations
Klein,Gary
Knetsch,Jack
know,useofword
knowledge;reconstructionofpaststatesof
kouros
Krueger,Alan
Kunreuther,Howard
Kuran,Timur
labornegotiations
LadyMacbetheffect
language,complexvs.simple
Larrick,Richard
Larson,Gary
law,seelegalcaseslawoflargenumbers
lawofsmallnumbers;andbiasofconfidenceoverdoubt
lazinessofSystem2
Layard,Richard
leaderlessgroupchallenge
leadershipandbusinesspractices;atGoogle
LeBoeuf,Robyn
legal cases: civil, damages in; DNA evidence in; fourfold pattern and; frivolous; loss
aversionin;malpractice;outcomebiasin
leisuretime
less-is-morepattern
Lewis,Michael
libertarianpolicies
Lichtenstein,Sarah
life:evaluationof;storiesin;satisfactionin;thinkingabout
Lindaproblem
List,John
loans
logarithmicfunctions
lossaversion;inanimals;enhanced;goalsasreferencepointsin;inlegaldecisions;status
quoand
lossaversionratio
losses
lotteries
Lovallo,Dan
LoveCanal
luck
lying
Malkiel,Burton
Malmendier,Ulrike
malpracticelitigation
MaoZedong
marchofhistoryuote>
Markowitz,Harry
marriage;lifesatisfactionand
MathematicalPsychology(Dawes,Tversky,andCoombs)
matter,relationofmindto
McFarland,Cathy
media,availabilityheuristicand
medicalschooladmissions
medicalsurveyproblem
medicine;expertisein;malpracticelitigation;overconfidencein;physicians;unique
casesin;unusualtreatmentsin
Mednick,Sarnoff
Meehl,Paul
meetings
memory,memories;associative,seeassociativememory;availabilityheuristicand,
seeavailability;durationneglectin;experiencedutilityand;illusionsof;andthe
rememberingself;ofvacations
mentalaccounts
mentaleffort,seeeffortmentalenergy
mentalshotgun
mereexposureeffect
messages,persuasive
metaphors
Michigan/Detroitproblem
MichiganStateUniversity
Michotte,Albert
Miller,Dale
mind,relationofmatterto
Mischel,Walter
miswanting
MIT
moneyandwealth:culturaldifferencesinattitudestoward;happinessand;income
vs.leisure;mentalaccountsand;poverty;primingand;utilityof
Moneyball(Lewis)
mood,seeemotionsandmoodMorgenstern,Oskar
Mosesillusion
motivation
movies
“MPGIllusion,The”(LarrickandSoll)
mugexperiments
Mullainathan,Sendhil
Müller-Lyerillusion
multipleregression
Mussweiler,Thomas
mutualfunds
names:complicated;offamouspeople
narrativefallacy
narrowframing;dispositioneffect
NaturalisticDecisionMaking(NDM)
negativitydominance
negotiations
neuroeconomics
NewYorkTimes,The
NewYorkUniversity
9/11
Nisbett,Richard
Nixon,Richard
NobelPrize
norms
normtheory
novelty
Nudge(ThalerandSunstein)
nutrition
OaklandAs
Obama,Barack
obesity
Odean,Terry
OfficeofInformationandRegulatoryAffairs
one-sidedevidence
Oppenheimer,Danny
optimalexperience
optimism;inCEOs;resilienceand
optimistic bias; competition neglect; in entrepreneurs; overconfidence; planning
fallacy;premortemand;risktakingand
OregonResearchInstitute
organdonation
organizations
outcomebias
outsideview
ou>
pain; chronic; cold-hand experiment and; colonoscopies and; duration neglect
and;injectionpuzzleand;memoryof;operationexperimentand;peak-endrule
and;inrats
paraplegics
parole
past:andconfusingexperienceswithmemories;hindsightbiasand;regretand
pastness
patternseeking
Pavlov,Ivan
peak-endrule
persuasivemessages
physicians;malpracticelitigationand
pianoplayingandweight,measuring
planecrashes
planningfallacy;mitigating
plausibility
pleasure;inrats
Plott,Charles
poignancy
politicalexperts
politicalpreference
Pólya,George
Pope,Devin
Porras,JerryI.
positiveteststrategy
possibilityeffect:gamblesand;threatsand
post-traumaticstress
poverty
precautionaryprinciple
predictability,insensitivityto
predictions and forecasts; baseline; clinical vs. statistical; disciplining; of experts, see
expertintuition;extreme,value of; formulasfor,seeformulas;increasingaccuracy
in; low-validity environments and; nonregressive; objections to moderating;
optimistic bias in; outside view in; overconfidence in; planning fallacy and; short-
termtrendsand;valid,illusionof;seealsoprobability
preferencereversals;unjust
premonition,useofword
premortem
pretentiousnesslanguage
pricingpolicies
priming;anchoringas
t=”-5%”>
PrincetonUniversity
probability; base rates in, see base rates; decision weights and, see decision weights;
definitions of; and disciplining intuition; less-is-more pattern and; Linda problem
and;overestimationof;plausibilityand;andpredictingbyrepresentativeness;prior,
insensitivity to; professional stereotypes and; of rare events, see rare events;
representativenessand,seerepresentativeness;similarityand;subjective;assum-like
variable;seealsopredictionsandforecasts
probabilityneglect
ProceedingsoftheNationalAcademyofSciences
professionalstereotypes
professorialcandidates
prospecttheory;inAlbertandBenproblem;blindspotsof;cumulative;decisionweights
andprobabilitiesin;fourfoldpatternin;framesand;graphoflossesandgainsin;loss
aversionin;referencepointsin
“ProspectTheory:AnAnalysisofDecisionUnderRisk”(KahnemanandTversky)
prototypes
psychiatricpatients
psychologicalimmunesystem
psychology,teaching
psychopathiccharm
psychophysics
psychotherapists
pundits;seealsoexpertintuitionpunishments:altruistic;rewardsand;self-administered
pupildilation
questionnaireandgiftexperiments
questions;substitutionof,seesubstitution
Rabin,Matthew
radiologists
rafters,skilled
railprojects
randomnessandchance;misconceptionsofRandomWalkDownWallStreet,A(Malkiel)
rareevents;overestimationof;regretand
rational-agentmodel
rationality
RationalityandtheReflectiveMind(Stanovich)
“>rats
Reagan,Ronald
reciprocalpriming
recognition
recognition-primeddecision(RPD)model
Redelmeier,Don
referenceclassforecasting
regressiontothemean;causalinterpretationsand;correlationand;difficultyingrasping;
two-systemsviewof
“RegressiontowardsMediocrityinHereditaryStature”(Galton)
regret
religion
rememberingself
RemoteAssociationTest(RAT)
reorganizationsincompanies
repetition
representativeness;baseratesand;seealsobaserates;inLindaproblem;predictingby;
professionalstereotypesand;sinsof;inTomWproblem
research:artifactsin;hypothesistestingin;optimismin
resemblance;inpredictions
resilience
responsibility
retrievabilityofinstances
reversals;unjust
rewards;self-administered
Rice,Condoleezza
risk assessment; aggregation and; broad framing in; decision weights in, see decision
weights;denominatorneglectand;byexperts;andformatofriskexpression;fourfold
patternin;forhealthrisks;hindsightbiasand;lawsandregulationsgoverning;loss
aversion in; narrow framing in; optimistic bias and; policies for; possibility effect
and;precautionaryprincipleand;probabilityneglectand;publicpoliciesand;small
risksand;oftechnologies;terrorismand;seealsogambles
riskaversion
riskseeking
“RobustBeautyofImproperLinearModelsinDecisionMaking,The”(Dawes)
Rosett,Richard
Rosenzweig,Philip
RoyalDutchShell
RoyalInstitution
Rozin,Paul
<Philip
Rumsfeld,Donald
RussellSageFoundation
Russia
SaddamHussein
sadness
safety;healthrisksand;healthviolationpenaltiesand;precautionaryprincipleand
samples, sampling: accidents of; and bias of confidence over doubt; law of large
numbers;lawofsmallnumbers;sizeof;small,exaggeratedfaithin
Samuelson,Paul
SanFranciscoExploratorium
Savage,Jimmie
SaveMoreTomorrow
Schelling,Thomas
Schkade,David
schoolsize
Schwarz,Norbert
Schweitzer,Maurice
Science
ScientificAmerican
scientificcontroversies
scientificresearch:artifactsin;hypothesistestingin;optimismin
ScottishParliament
self-control
self-criticism
Seligman,Martin
selves;experiencing;remembering
sets
Shafir,Eldar
similarityjudgments
Simmel,Mary-Ann
Simon,Herbert
Simons,Daniel
Simpson,O.J.
singleevaluations;jointevaluationsvs.
skijumpevent
skills; acquisition of; environment of; feedback and practice in; illusions of; in stock-
picking
Slovic,Paul
Slovic,Roz
slowthinking
<=“0>
smiles,infacereading
smiling;availabilityheuristicand
Smith,Vernon
socializing
socialscience
Soll,Jack
somaticmarkerhypothesis
soul
SourcesofPower(Klein)
SovietUnion
Spinoza,Baruch
SportsIllustrated
Stalin,Joseph
Standard&Poors(S&P)
StanfordUniversity
Stanovich,Keith
statisticsandstatisticalthinking;andaccidentsofsampling;baseratesand,seebaserates;
Bayesian;andbiasofconfidenceoverdoubt;causesand;chancein;decidingonsize
ofsample;extremeoutcomesand;faithinsmallsamples;lawoflargenumbers;law
ofsmallnumbers;samplesizedecisionsand;seealsoprobability
statusquo,defending
Steiger,JamesH.
stereotypes;causal;aboutprofessions
Stevethelibrarian
stockmarket
stockpicking
stockportfolios
stocktrading,insider
Stone,Arthur
stories,life
St.Petersburgparadox
Strack,Fritz
strangers,assessmentof
StrangerstoOurselves(Wilson)
Streep,Meryl
strength,assessmentsof
structuredsettlements
StumblingtoHappiness(Gilbert)
substitution;andmoodheuristicforhappiness;and3-Dheuristic
success,uot
sum-likevariables
sunk-costfallacy
Sunstein,Cass
SuperBowl
supplyanddemand
surgeons
Surowiecki,James
surprise
surveyandgiftexperiments
survival-mortalityexperiment
symbols
System1;characteristicsof;conflictbetweenSystem2and
System2;conflictbetweenSystem1and;lazinessof
Taleb,Nassim
talent
tasksets
taskswitching
Tate,Geoffrey
taxes;childexemptionsand
temperament
temptation
Tenet,George
terrorism
Tetlock,Philip
Thaler,Richard
theory-inducedblindness
therapists
thinkinglikeatrader
Thomas,Lewis
threats;possibilityeffectand
3-Dheuristic
tickets;buyingandsellingof;sunkcostin
time;useof
timepressure
Todorov,Alex
tokenexperiment
TomWproblem
“TradingIsHazardoustoYourWealth”(BarberandOdean)
transactionsandtrades
Traviata,La(Verdi)
Truman,Harry
trustworthiness,assessmentsof
truth,illusionsof
Tversky,Amos
understanding,illusionof
uniquecases
UniversityCollegeLondon
UniversityofCaliforniaatBerkeley
UniversityofChicago
UniversityofMichigan
UniversityofMinnesota
UniversityofOregon
unlikelyevents,seerareeventsunknownunknowns
utility;decision;experienced;indifferencemapand;injectionpuzzleand;meaningsof
utilitytheory;certaintyeffectand;decisionweightsandprobabilitiesin
vacations
vaccines
validity:ofclinicalvs.statisticalpredictions;evaluating;illusionof
Vallone,Robert
value;seealsoutilityVancouverIsland
Venndiagrams
venturecapitalists
victimcompensation
vividness;ofoutcomes;ofprobabilities
vocabulary:ofgirlsvs.boys;simplevs.pretentious
Vohs,Kathleen
vomit,effectofword
VonNeumann,John
voting
Wainer,Howard
walking
wars
WashingtonPost,The
wealth,seemoneyandwealth
weather
Weber,Ernste>
weightandpianoplaying,measuring
Weiner,Howard
well-being; climate and; defining; disposition for; duration weighting and; see also
happiness
West,Richard
what you see is all there is (WYSIATI); confidence and; curriculum team and; Julie
problem and; optimistic bias and; premortem and; professorial candidate problem
and;soldiers’performanceand;TomWproblemand
wheeloffortune
“wicked”environments
Wilson,Timothy
Wimbledontournament
wine
WinterOlympics
WisdomofCrowds,The(Surowiecki)
witnesses’evidence
Woods,Tiger
words:complexvs.simple;emotionally-loaded
WorldCup
WorldWarII
worry
WYSIATI,seewhatyouseeisallthereis
X-rays
Xu,Jing
Yaleexamproblem
YomKippurWar
Zajonc,Robert
Zamir,Eyal
Zeller,Kathryn
Zweig,Jason
Zwerling,Harris
P
Farrar,StrausandGiroux
18West18thStreet,NewYork10011
Copyright©2011byDanielKahneman
Allrightsreserved
Grateful acknowledgment is made for permission to reprint the following previously
publishedmaterial:“JudgmentUnderUncertainty:HeuristicsandBiases”fromScience,
NewSeries,Vol.185,No.4157,copyright©1974byAmosTverskyandDan”0%”te>X-
raysScience.“Choices,Values,andFrames”fromTheAmericanPsychologist,copyright
©1983byDanielKahnemanandAmosTversky.ReprintedbypermissionoftheAmerican
PsychologicalAssociation.
Gratefulacknowledgmentismadeforpermissiontoreprintthefollowingimages:Image
courtesy of Paul Ekman Group, LLC. Image from “Cues of Being Watched Enhance
Cooperation in a Real-World Setting” by Melissa Bateson, Daniel Nettle, and Gilbert
Roberts,BiologyLetters(2006);reprintedbypermissionofBiologyLetters.Imagefrom
Mind Sights by Roger N. Shepard (New York: W.H. Freeman and Company, 1990);
reprinted by permission of Henry Holt and Company. Image from “Human Amygdala
Responsivity to Masked Fearful Eye Whites” by Paul J. Whalen et al., Science 306
(2004).ReprintedbypermissionofScience.
LibraryofCongressCataloging-in-PublicationData
Kahneman,Daniel,1934–
Thinking,fastandslow/DanielKahneman.—1sted.
p.cm.
Includesbibliographicalreferencesandindex.
ISBN:978-0-3742-7563-1
1.Thoughtandthinking.2.Decisionmaking.3.Intuition.4.Reasoning.I.Title.
BF441.K2382011
153.4‘2—dc23
2011027143
www.fsgbooks.com
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*5,47.
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*Featureintroducedindetailinpart4.
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*Featureintroducedindetailinpart4.
P
*Featureintroducedindetailinpart4.
P
*Featureintroducedindetailinpart4.
P
*Featureintroducedindetailinpart4.
P
*ThisarticleoriginallyappearedinScience,vol.185,1974.Theresearchwassupported
by the Advanced Research Projects Agency of the Department of Defense and was
monitored by the Office of Naval Research under contract N00014-73-C-0438 to the
OregonResearchInstitute,Eugene.Additionalsupportforthisresearchwassr”0%”wid
provided by the Research and Development Authority of the Hebrew University,
Jerusalem,Israel.
P
*ThisarticlewasoriginallypresentedasaDistinguishedScientificContributionsAward
addressattheAmericanPsychologicalAssociationmeeting,August1983.Thisworkwas
supported by grant NR 197-058 from the U.S. Office of Naval Research. Originally
publishedinAmericanPsychologist,vol.34,1984.
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